Nfts
The aura of cryptocurrencies (and the death of NFTs)
Walter Benjamin does crypto
Group of men
An argument for crypto (via Walter Benjamin)
I got a brief glimpse of what those on the front lines of crypto experience on a daily basis when I created what I thought would be a fairly non-controversial post on LinkedIn on the speed (or lack thereof) with which cryptocurrencies have been adopted into mainstream commerce. The response to my post contained a wide range of different views, but it was notable that Bitcoin advocates were more vocal and sometimes downright aggressive in their tone, accusing me of either a deliberate attempt to sabotage their blockchain revolution , or blindness. incurred by being in the pocket of Big Fiat Currency for so long. This is a shame, because I tend to be one of the most enthusiastic voices when it comes to crypto discussions on the trading floor.
It seems symptomatic of our times that positions on cryptocurrencies have become so quickly entrenched – you are either violently pro or decidedly anti – that there is very little room left for a nuanced discussion about the pros and cons of this revolution for the world of money. HAS Group of men, we approached crypto like we approach any new asset class, undertaking enormous research, carrying out in-depth studies into the potential risks and how to mitigate them. We then moved to live trading and have now integrated Bitcoin and Ether into a number of our systematic strategies.
One of the crypto champions within the company is Tarek Abou Zeidpartner and senior client portfolio manager at Male AHL. Tarek spoke eloquently about Bitcoin and Ether at our Unconventional Investing Conference at the Whitney Gallery last week. He made a comparison between NFTs – much laughing at the sums paid for Bored Apes and real estate in virtual worlds – and crypto.
A bored monkey
Bored monkey
Tarek’s argument centered on the relative price action exhibited by these speculative assets and that of cryptocurrencies. It showed that NFTs followed similar price trajectories to a number of historical bubbles, from tulips to railways to South Sea stocks. They spiral up as excitement builds, then, when the bubble bursts, they crash spectacularly.
Crash of a bored monkey
NFT floor price
Bitcoin, Ether and the other most liquid cryptocurrencies, however, behaved quite differently. In Tarek’s words: “A bubble is a persistent deviation from fundamental value… there is a distinguishing feature between coin price behavior and classic historical bubbles: crypto declines have been (until present) always followed by repeats. »
Bitcoin Price Recoveries
CoinDesk
Their price action more closely tracks all other developing asset classes in their early stages – from emerging market stocks to high yield debt or, looking further afield, the volatility exhibited by gold prices as it became accepted as a financial asset around the world. first years of the last century. The difference with these assets is that, despite the significant declines they suffered as investors went through cycles of greed and fear, acceptance and rejection, they always experienced a recovery. It’s a thesis that gives significant weight to the notion of crypto as a nascent asset class going through the early stages of a path to maturity.
After his talk, I directed Tarek to a 1935 essay by the great Walter Benjamin: “The Work of Art in the Age of Mechanical Reproduction.” In the essay, Benjamin talks about how the arrival of mechanical printing changed the way people thought about works of art. Benjamin writes about the “aura” of the original painting – the Mona Lisa, for example – which is linked to its place in time and space, to its incontestable authenticity. Rather than diminishing the aura, he continues, mass printing of artworks only accentuated the power of the original’s unique status.
This seems like a useful model for thinking about the divide between NFTs and cryptocurrencies, which I believe are both attempting to use blockchain technology to establish a source of value. Benjamin says: “what withers in the age of mechanical reproduction is the aura of the work of art.” The Mona Lisa on the wall of a university residence hall is devoid of all but the slightest fragment of the power of the work on display at the Louvre. The original retains all the power. NFTs have simply failed to overcome this fundamental observation. Their problem was that they were trying to create a virtual aura in a world of near-perfect replicability. No one could tell just by looking if your Bored Ape is different from the copy I just captured on my laptop.
I would argue that cryptocurrencies have achieved something different by removing any physical manifestation of their unique status and focusing entirely on the concept of scarcity and its connection to value. Unlike NFTs, which attempt to give digital assets an aura through their provenance but fail because they remain easily reproducible, cryptocurrencies derive their digital aura from the abstraction of their creation: complex mathematical processes and decentralized verification mechanisms. This abstraction not only ensures that each individual cryptocurrency retains its share of authenticity, uniqueness and rarity, but also gives the entire crypto world an air of ritual and quasi-religiosity, which Benjamin declared that mechanical reproduction had taken away from the art world. .
Cryptocurrencies as an asset class are of particular interest to our systematic strategies: they are increasingly liquid, move in recognizable patterns that work well within a trend framework, and are increasingly the subject of an institutional interest. They also offer real diversification, with little correlation with other assets.
Crypto in Trending Strategies
Bloomberg
Benjamin’s essay, linked here, is a fine example of how truly first-rate thinking can be adapted and applied to new worlds unimaginable to their authors. So the next time you check your crypto portfolio, think about one of the great minds of the 20th century and the aura that seems alive and well in digital currencies.