Ice-Nine for Markets

Every couple of years I go back and read the science fiction classics, which to some of us is a kind of secular canon. And most recently I’d revisited Vonnegut’s underappreciated novel Cat’s Cradle. Although it was a novel whose themes are set against the backdrop of the Cold War and nuclear proliferation, its themes feel as fresh and relevant to the present moment as they did back in the 1970s. At heart it’s a book about the dangers inherent in the struggle between nihilism, stupidity, religious thinking and indifference to mankind’s recently developed capacity for mass destruction. And in today’s context it also alludes to a prescient warning about the perils of crypto assets run amok.

The novel presumes the existence of an alternative structure of water (called ice-nine) that is solid at room temperature, and that when put in contact with normal water causes it to convert into the lower energy state of ice-nine in a cascade reaction. While this is obviously not a physical possibility in the real world, its use is as a science fiction allegory to talk about nuclear weapons. The plot itself is set on the South American island of San Lorenzo in which the inhabitants practice an outlawed religion known as Bokononism, which is an incoherent and absurd practice based on a scripture of “harmless untruths”. Both the religion and the state were engineered by two entrepreneurs who unsuccessfully founded the religion in order to bring about a utopia. The book ends with all members of the island cult ending their lives as they ritually ingest ice-nine and turn into human statues as the world ends, per the absurdist commandants of Bokononism.

The idea of the synthesis of doomsday scenarios and absurdist quasi-religious movements strikes me as particularly relevant to the modern condition, because I see this everywhere I look in culture and most notably in the crypto asset bubble and the strange culture that surrounds it. The allegory of a lower energy state form of “capitalism” that sublimates in a chain reaction (or false vacuum decay) when it comes in contact with productive enterprise is a very good lens by which to understand the phenomenon of crypto assets like Dogecoin and NFTs. We’ve reached an absurd point in markets where the capitalization of meme coins has exceeded that of companies like Moderna. Where one of these enterprises produces nothing in the world except nihilistic jokes and the other cures a global pandemic. Which is a lower-energy project that gives better short-term returns to holders—advancing the frontiers of mRNA immunotherapy or dog memes? Which one would the average purely rational neoclassical actor choose to do with a better chance of succeeding given the choice? Why do anything but meme your way to a fortune?

The axiomatic problem at the foundation of economics, known as the economic problem, is how to make the best use of limited, or scarce, resources. Crypto ideology has nothing to offer as a solution to the economic problem, instead it simply exists to proliferate digital tulips and create more runaway artificial scarcity. Crypto tokens are not currencies, not stores of value, not hedges against inflation, nor do they provide portfolio diversification. They have no underlying, no income, and no statistically significant long term relationship to macroeconomic factors. They solve no problem, and only exist to create more problems for which the answer is only one thing: more hoarding and accumulation. Crypto is the investment equivalent to what Oscar Wilde said of fox hunting “the unspeakable in pursuit of the uneatable”.

And this is what I fear the most about this particularly pathological form of capitalism we’ve grown in the lab. If left to run unchecked it’s likely to consume everything it touches, because the opportunity cost of doing anything else is so high. It all sublimates into an increasingly byzantine Ponzi-like scheme, but denominated in monopoly money issued by the crypto-Bokononism acolytes through an absurdly complicated Rube Goldberg esque slot machine that consumes an ever-increasing amount of human time and resources, and yet produces nothing in the real world. A nearly lossless transform of greed into climate change. A giant circular non-economic whirlpool of tokens swirling around a singularity that annihilates human capital.

I think most economists and policy makers agree that we’re not at the point of systemic risk to the US economy yet, the ice-nine for markets is still contained in the lab and we haven’t had our first lab leak yet. Still, many of us in technology, finance and public policy are increasingly feeling the need to sound the alarm about what will happen when the first seed crystal is dropped in the ocean. It seems prudent to heed Warren Buffet’s warning about other market risks: Crypto is a financial weapon of mass destruction, carrying dangers that, while now latent, are potentially lethal.

It is a possible future that the United States economy will cannibalize itself in one final giant orgiastic speculative mania with everyone cracked out of their minds chasing the yield dragon and mainlining dog meme crypto derivatives. That’s a bit hyperbolic, but it’s not that far from the insanity we read in the Financial Times every day now. If we look to the lessons of history, the only precedent we have for financial disasters on this scale are the 2008 financial crisis and the 1990s pyramid scheme mania of Albania where over half of the country’s GDP became locked up in non-economic investment schemes run by grifters looking to loot a vulnerable country. The story of Albania is a prescient warning for what might happen when regulatory capture and profiteering enabled by government sclerosis and a mindset of ‘wait and see’, much like what we see with the SEC’s so-called “policy” on regulating crypto investment schemes.

The core notion that separates the crypto true believers from the skeptics is the capacity to make a Kierkegaardian leap of faith, to go beyond the boundaries of reason and despite the intellectual incoherence and absurdism of the movement (like Bokononism) realize it does offer comfort for those who believe in the promised land they believe is being manifest by the movement. The philosophy of bitcoin is prefigurativism expressed through the worship of the golden calf of decentralization. And to be fair, for some people that future really can’t present as any worse than what already exists. Forty years of Reagan and neoliberal policy have created a bleak outlook for many Americans and any conception of any future—even one tied to apocalyptic fetishism—seems better than the present.

Maybe the next financial crisis will be ushered in by a meme of a giant shibu lying on its back, grinning horribly, and thumbing its nose at liberalism while markets crystallize into stagnation.