“All that glitters is not gold—
You’ve often heard that said.
Many men have sold their souls
Just to view my shiny surface.
But gilded tombs contain worms.
If you’d been as wise as you were bold,
With an old man’s mature judgment,
You wouldn’t have had to read this scroll.”
Shakespeare
Shakespeare’s Merchant of Venice is a timeless play because of it’s innumerable parallels to modern society; not many works of literature can pull on so many different vectors of life at once: the desire for power, relationships, and loyalty. Certainly, many of us can relate to the character of the Prince: when asked to select between boxes of gold, silver, or lead respectively for the much-desired Portia’s hand in marriage, he selects gold from its outside appearance and inscription: “who chooseth me shall gain what many men desire.”
However, upon opening the box, he sees the pithy poem that all that ‘glisters isn’t gold’ and is forced to abandon his quest for Portia because he is devoid of “an old man’s mature judgement.”
While that’s interesting, what if the inverse is true: all that’s gold doesn’t necessarily glitter if the alternatives are measurably better. I suspect that this is why Gen-Z, as a whole, is moving their time and money toward digital assets instead of their physical counterparts – reality has lost much of its “glister.”
Rich as Croesus
“[This demand for gold] isn’t anything that we’ve seen in a generation because refiners never had to shutdown – not in war, not in the great financial crisis, not in natural disasters. It’s never happened. And it happened astonishingly rapidly.”
As the coronavirus continues to devour the distinctions between time and space, the stampede to safety has since gone supersonic and everyone is hoarding gold bullion. In recent weeks, however, there has been such a demand for bullion that the gold community is worried that supply is miles away from demand because gold miners are on global lockdown. Concurrently, the Fed has signed off on a Faustian bargain claiming that they will print as much money and undergo unlimited quantitative easing until the American economy is back on track. Could the stars have aligned any better for gold bulls?
But despite the demand, gold has its own set of issues. Thankfully, we now have the means to invent better stores of value forthwith than what nature itself had in mind. Conceptualized around the world of bits, the cryptocurrency revolution is now seeping into every crevice in the world of atoms.
Why did gold become such a prized commodity? Certainly, there are other dazzling elements, fungible commodities, and in truth, there are items that hold their shape better – platinum – and those that are more rare than gold – palladium. However, none of these alternatives could defeat gold as a worldwide staple because hollistically, gold resoundingly beat everyone else.
The history of gold is a story of path dependence more than anything else. In the 6th century BC, Lydians used a gold–silver alloy called Electrum to mint coins; later, they figured out how to divorce the two substances and expertly extract the gold itself. So prized was the metal that rich men were said to be as rich as Croesus, named after the first king to use gold denominated currency.
In time, the Byzantines in the Middle Ages used Bezant, a gold substance, for their coins. After the decline and fall of the Byzantine Empire, the Western world took silver as its mantelpiece – even the word dollar arises from the German silver coin ‘thaler;’ gold only rose in prominence once more with the rise of the British empire in the 19th century, making it relatively recent that we’ve placed such importance on gold. What does this imply? We use gold because it has hitherto accomplished the job perfectly well, but Zoomers today view gold as a second-rate investment in comparison to digital assets like cryptocurrencies.
We are enamored by gold first because of its glimmer and are fooled into believing that it’s the best safe haven asset because of its stability, rareness, and its non-toxicity. Make no mistake, gold is a local maximum for such a basket of qualities, but by no means is a platonic form – we can engineer better vectors through the digital world.
Gold is for boomers
Most men of business think "Anyhow this system will probably last my time. It has gone on a long time, and is likely to go on still."
Walter Bagehot
People have made comparisons between Bitcoin and gold, leading to Bitcoin’s pejorative name as “digital gold.” While this is a made-to-measure metaphor for the layman, a better way to describe Bitcoin is that it achieves gold’s above qualities from a first principles perspective; the benefits include safety against seizure, a built-in deflationary monetary policy, and ease of transfer.
But this opens up an entirely new avenue of thinking. We can ascribe value to all manners of digital goods e.g. CryptoKitties, founded in 2017. There is "no clear distinction between money and non-money," as Hayek argued, "although we usually assume there is a sharp line of distinction between what is money and what is not…what we find is rather a continuum in which objects of various degrees of liquidity…shade into each other in the degree to which they function as money."
Just like nobody thought that the only successful company out of the green bubble in the 2000s would be a premium electric car company, it was startling that CryptoKitties was an epochal hit during the ICO bubble of 2017 where people were paying six figures for digital felines.
This was around the time of the worldwide scam in the first-person shooter game, CS:GO, where thieves conducted a money-laundering operation by exchanging digital skins within the game for hard cash. Criminals would launder income gained from stealing credit card data and move it into the game where they could then send it to an unknown destination; it was easy to do so because the skins retained a constant value in game.
Because most of our time is spent online, digital goods skyrocket in value. Attention is money. Instead of cars, teens want Fortnite skins; instead of the NFL, they want e-sports teams; and instead of college, they want Zoom University. The issue is that the establishment can’t understand the value in digital assets – those that run Fortune 500 companies are often over the age of 50. Age aside, CS:GO is an example for how unevenly the future is spread out: Congress is already arguing for the dollar to be digitized and perhaps will choose to do so during the nadir of this incoming economic depression. Digital currency is the easiest bet of my lifetime as it’s not a matter of if we go digital, but when.
Globalization’s future
As borders everywhere shut down and we end this ghastly period in the same manner as that of the Long 19th Century, the next phase of globalization will undoubtedly take place online, not in person. Video games are only one modality that has seen a Cambrian explosion in creativity as one of the last few mediums unblemished by regulation. The internet of Web 2.0 has become a regulatory mess, while gaming is one of the last frontiers.
Even venture capital financing is taking place over Fortnite, leading to the creation of MatchBox.vc. Remember when people used to do deals over the golf course? The new golf course is actually located in our living rooms, but we have the ability to compete with people across man-made borders.
And as the Federal Reserve pumps more than $6 trillion into our economy, people will be searching for more secure forms of value whether they come from the dwindling supply of the Earth or as a digital asset like Bitcoin or CryptoKitties.
I’m only certain that once-respected individuals and governments are blind to the exhausted, twilight era of the Long 20th century: they assume their system is likely to go on forever even though their foundations are unraveling at the seams. I don’t think we have the power to prevent change, but we have the power to notice that the tide is receding – it’s only a matter of preparing for the inevitable Tsunami to hit and wash away the old.
If you haven’t already, check out my post The FDA’s Demise.
Really appreciate all the kind emails, please feel free to send me a message if you’d like to chat!
– Anirudh