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What’s the biggest financial crime of all time? According to Alex Danco, it may well be Bitfinex’s alleged (mis)use of Tether to manipulate the Bitcoin price in 2017. Bitfinex is now being sued and the claimants put the damage at $1.4 trillion. It’s one of the best stories I’ve read this year; read the whole thing here and here (I highly recommend Danco’s newsletter; among not only the most perceptive, but also the most entertaining writers in tech)

The short version is that Bitfinex marketed Tether as a fully collateralised, dollar-pegged cryptocurrency. Allegedly, this was a fraud; Bitfinex in fact “printed” Tether at will and used it to prop up the Bitcoin price. In this account, this was the primary driver of Bitcoin’s extraordinary price run from ~$1000 to ~$20,000 in 2017. Deliciously, this only came to light because Bitfinex were themselves defrauded by their bank, Crypto Capital Corp.

The affair illustrates how far short the crypto-economy falls from the vision of a real alternative to traditional financial services. As Danco shows, crypto lives and dies by its on- and off-ramps to the fiat economy. Trusted third parties are indeed security holes - and the crypto economy is full of them (Matt Levine talks about another one in the third item here: almost all the crypto exchanges use the same small fiat bank). I’ve not yet given up on crypto, but after ten years it’s got less to show for itself than I’d have hoped.

For me, the best critique of actually existing capitalism is that we don’t have anything remotely like free markets; our economy is dominated by rent seekers, monopolists and “predators”. It’s a critique made on both Left and Right - so why is it so hard to build a political coalition for a reformed capitalism? Steve Randy Waldman has an interesting answer (and one of the best political economy essays of the year): “the people who are your predators financially are, in their turn, someone else’s prey”.

Waldman argues that the most expensive luxury good of all in the US is the ability to (re)produce membership of the upper middle class for your children. It’s a good that keeps going up in price because its component parts - private schools, Ivy League education, etc - are positional goods whose supply is inelastic (Relatedly, this is a useful thread on why Harvard, etc, doesn’t expand to meet demand, when they could). 

To afford this in America today, Waldman says, requires market power: “the result is a strange precariat, objectively wealthy, educated and in a certain sense well-intended, who justify as a matter of defensive necessity participation in arrangements whose ugliness they cannot quite not see”. This line of argument is coming to the UK too. Those of us who are capitalists need a better response than hoping a new Red Scare will save us. 

I’ve been thinking quite a lot about biology in recent months - partly because we’ve been funding a lot more biology companies in my day job, partly because there are exciting things happening in biology-meets-machine-learning in London and partly because it’s increasingly clear that biology is mutable in ways that were hard to imagine even a decade ago.

If you Google, “biology is mutable”, the first hit you get is this excellent Slate Star Codex essay, Society is fixed, biology is mutable from 2014. The author, Scott Alexander, points out that society has proven really, really hard to change, even in areas where we’ve poured billions of dollars and attempted wholesale social engineering, like fighting drugs or obesity. By contrast, there are some areas where we’ve had extraordinary success through essentially biological interventions - like banning lead or promoting vitamin intake.

The political implications are interesting. As Alexander notes, the Left generally sees social outcomes as mutable and social engineering as the mechanism to improve them. The Right sees outcomes as immutable and so social engineering as pointless. What if both are wrong: what if social outcomes are mutable, but biology is the best mechanism? Yet there’s undoubtedly something “icky” about this. It’s an interesting question of path dependence: if eugenics didn’t have such an appalling history, might there be more appetite for biological interventions?

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Until next week,

Matt