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Crypto is an ESG wasteland, and that usually leads to losses
It’s Throwback Thursday here at ESG Hound!
I’m taking a short break from writing about SpaceX. Partly because we’re waiting for some updates from our friends at the FAA. I’d also like to remind my readers (new and old) that I’m not an Elon Musk-hate blogger. Well, not exclusively, that is.
Today we’re hopping into the ESG Hound Time Machine and going back almost exactly four years ago. 2017 was a strange year for financial markets for many reasons. Remember how President Donald Trump used to randomly tweet about companies, which would immediately send their stock on a wild rollercoaster of ups and downs? Fun stuff.
But 2017, more importantly, was the year that Bitcoin hit it big.
Crypto has long attracted scammers, pretty much since it first appeared over a decade ago. The Trendon Shavers saga remains one of my favorite tales, in no short part because someone using the anonymous internet handle “pirateat40” advertised an investment opportunity he called “Bitcoin Savings and Trust” with obscenely high guaranteed returns. His description of it on the Bitcoin Talk Forums (circa 2011) could’ve been pulled directly from the Wikipedia article for “Ponzi Scheme.”
It turned out to be, well, a multi-million dollar Ponzi scheme. What’s fascinating is that many users on the forum correctly identified it as a Ponzi scheme and still gave the guy money! The logic was that they would be smart enough to be one of the ones to pull out before the house of cards fell.
In 2017, as Bitcoin started rocketing up from below $1000 to nearly $20,000, the media took notice. As did major financial institutions. The ticking price of Bitcoin became a constant on the bottom of every CNBC broadcast, displayed alongside the Dow and S&P 500.
This kind of speculative frenzy draws in fraudsters. That’s not new. 2017 saw the rise of Ethereum (Bitcoin’s 1B in the cryptocurrency universe), Crypto Kitties, Initial Coin Offerings (ICOs), smart contracts, and far too many asinine news stories for me to recall. But nothing encapsulated the absurdity of the frenzy like the “Publicly Traded Company Blockchain Press Release” phenomenon.
Bitcoin, despite being hailed as some sort of US Dollar killer, functions remarkably poorly as an actual currency. But The Blockchain was different. Or at least that was the story we were told. The Blockchain is the unbreakable, decentralized, permanent public ledger of all transactions. It could be used to replace enterprise resource planning (ERP) tools. Document Healthcare records! Memorialize loan agreements! Track the authenticity and origin of consumer goods!
I can’t seem to figure out which company figured out the Blockchain Press Release hack first, but someone figured out that announcing your company was looking at using The Blockchain for a business purpose would lead to immediate massive spikes in the price of their stocks. So, Weed companies did it. Biotech companies did it. Reverse-listed Chinese Shell Companies, of course, did it. Kodak, the nearly dead and once-great giant got in on the grift.
The next level of shameless stock pumpery was to rename your company to include the word “Blockchain.” Biotix, a shady microcap pharma, renamed itself Riot Blockchain (they’re still around). But nothing, in my mind, would compare to Long Blockchain. The makers of the canned beverage “Long Island Iced Tea” made the pivot, announced on December 21st, 2017:
Farmingdale, NY , Dec. 21, 2017 (GLOBE NEWSWIRE) -- Long Island Iced Tea Corp. (NasdaqCM:LTEA) (the "Company"), today announced that the parent company is shifting its primary corporate focus towards the exploration of and investment in opportunities that leverage the benefits of blockchain technology. In connection with the shift in strategic direction, the Company has approved changing its name from "Long Island Iced Tea Corp." to "Long Blockchain Corp." and has reserved the web domain www.longblockchain.com. The Company intends to request Nasdaq to change its trading symbol in connection with the name change. The Company will continue to operate Long Island Brand Beverages, LLC as a wholly-owned subsidiary and maintain the focus of this business on the ready-to-drink segment of the beverage industry, specifically, premium, ‘better-for-you' brands marketed at an affordable price.
In retrospect, the top of speculative bubbles is obvious, with the absurdity of the whole thing undeniable once in the rearview mirror.
What’s Old Is New Again
I’ll be the first to admit that the 2021 resurgence of Bitcoin and Crypto took me by surprise. Heck, 2017’s “bubble” looks quaint in comparison to this year, where a single Bitcoin almost touched $70,000. Did no one learn a thing just 4 short years ago?
Calling tops is a fool’s errand, and I’m not one to do such a thing. But the absurdity of Bitcoin and Cryptocurrencies is even bigger this time, which will become clear with time. On top of that, every single flaw with Crypto is still there and arguably worse. Bitcoin and Ether and every other “altcoin” are terrible for payments. The Blockchain still isn’t used for actual companies despite years of promises. This time, we’ve got NFTs though!
I don’t want to walk through all of the specific ways in which Non Fungible Tokens (NFTs) are absurd. Here’s reading on the topic if you’re so inclined. A NFT is a crypto token that confers ownership of a URL link to a piece of art, document or other digital item stored on a web server elsewhere. The NFT does not actually give the owner actual ownership (or rights thereof) of the picture/video/mp3. It’s just a link. So, of course, lots of these dumb things are trading for thousands or millions of dollars. The real use case is probably just fraud and money laundering, but the NFT trade is exactly as dumb as it sounds.
And, as in 2017, announcing sales of NFTs is the cool new thing companies do. It seems less for stock price manipulation, as most of the offenders are not publicly traded. Webchat software Discord did it. As have a few Video Game developers. Instagram Influencers (and Tom Brady!) sell NFTs and other crypto coins. This activity should be expected, they’re there to make a quick buck.
(Presumably) real businesses are all in on this now as well I guess. Last week, Crowdfunding platform Kickstarter decided to pivot to making funding projects sort of like NFTs, using crypto in lieu (or in addition to) regular Dollars and Euros.
By all accounts, Kickstarter makes money. Their business model is simple. Kickstarter provides a central listing service where companies or individuals can propose projects (video games, shitty coolers, smartwatches to name a few) and enthusiastic fans can pre-pay for the good or service. This allows creators or inventors to determine interest in a product before they commit resources to actually making it. Kickstarter takes a rather large cut of all transactions, which total in the hundreds of millions of dollars per year.
The backlash was swift. Crypto haters pointed out that crypto is full of blatant scams and pump and dumps. They also pointed to the inconvenient truth that the “mining” and transaction of crypto is an insanely energy-intensive activity:
Kickstarter pushed back on these concerns with a strange FAQ.
Essentially, they brush aside all concerns in cringe-worthy “hip” PR, like this:
You may have heard of HTTP (Hypertext Transfer Protocol) which helps you browse the web, or SMTP (Simple Mail Transfer Protocol) which helps you send email. Protocols like these make up the unseen infrastructure of the internet. Imagine that, but for crowdfunding creative projects.
The protocol will live on Celo, a carbon-negative, public blockchain, be open source, and be available for collaborators, competitors, and independent contributors from all over the world to build upon, connect to, or use.
Now, click through to Celo’s website and it becomes clear that their solution to solve crypto’s catastrophic and wasteful environmental impact is to…. wait for it….
Plant a tree.
To be clear, we2 here at ESG Hound are very much 🌳Pro Tree Planting🌳 but this kind of carbon offset is the laziest and ineffective method for actually addressing climate-impacting activities (I have more on this topic in the works).
Let’s not forget that Kickstarter, the company, has such awful management that their employees unionized back in early 2020. Not only was it the first tech company to have unionized (before recent inflation started making Unions great again), but Kickstarter itself is a Public Benefit Corporation (PBC), which is structurally set to make not just profits a priority. PBCs must also consider the needs of the Planet and their Employees when making business decisions. If ESG were a business model, it would advertise itself as something nearly identical to a PBC.
So, we have a company that advertises itself as a ESG-like entity with a clearly toxic workplace environment that is suckered in by the planet fraud de jour.
So my question, dear readers is:
How can this NOT be the top for Crypto?
I suppose time will tell. Thanks for reading and please subscribe:
Technically, BTC peaked at ~$19,900 a few days earlier but the point stands, dangit
It’s literally just me, I’m one person