Michael Arrington, founder and former editor of TechCrunch, as well as partner at Arrington XRP Capital, spoke to The Capital backstage after a relatively heated panel discussion. During the panel — the last one of day one — he called the crypto industry “sick” and lacking fundamentals. We asked Arrington to explain this sickness, as well as any possible “cures.”
The Capital: During your panel, you said that the crypto industry was “sick.” What did you mean by that?
Michael Arrington: When everything’s going well [in an industry], there’s lots to talk about. I listened to some of the panels today, and people are talking about some of the new staking models, some of the new DeFi products. There are really interesting new things to talk about.
Our topic was more just about the top 100 coins and what it takes to get there. It’s a bleak topic because everything’s manipulated by the exchanges. Sometimes it’s based on if you pay off the exchange to get on the exchange, or maybe it’s specific exchanges, but there’s a whole game there, personal relationships — but none of it’s really about the fundamentals.
We need something interesting to happen in this industry. You guys are pretty young, but I had my first computer in 1982, and it was really fun to play games on. But the real use case, the reason why people bought computers back then is because there were spreadsheets, and spreadsheets could do things you couldn’t do with a ledger, paper, pencils. People bought computers just for that.
That’s what they first started calling a “killer app,” and the fact of that app sold computers, and we don’t have that now. We have Bitcoin’s killer app: money. ETH for a while had a killer app of being able to issue ERC-20 tokens on top of it, and that drove 2017.
But it’s just not clear to me what the killer app is right now. We’re waiting for that. If I knew what it was, I’d built it, but I don’t know what it is.
The Capital: Why do you think Bitcoin is money?
Arrington: My answer is the book, The Bitcoin Standard. I think it completely outlined why Bitcoin is money and nothing else is money compared to Bitcoin — even gold is not money as much as Bitcoin is. I fully believe that and think it’s accurate.
To me, bitcoin is money, nothing else is.
The Capital: Wait a minute, why is the dollar not money?
Arrington: The dollar is not backed by anything of value, and there’s nothing restricting the government from printing more dollars; in fact, they print them all the time. They don’t even have to print them. They just put a number on a ledger. It is nothing, it is a forced-upon-us currency.
It is technically money, but it isn’t pure money in the sense of it is something that we all believe has intrinsic value, like we do with Bitcoin.
Bitcoin was nothing when it was first released into the world, but enough people believe in it and it became something. If more people believe in it, it becomes something more. It has a fixed supply that will never change and it is a beautiful, beautiful thing.
Why is gold money? It’s scarce, it’s divisible. You can’t fake gold. It’s a very near perfect form of money. One of the problems, it’s heavy: it’s much lighter than silver, but it’s difficult to lug it around any material amount, so that makes it much easier to steal. Whereas Bitcoin, it’s “stealable,” but in different ways and not because of its weight.
More gold is mined every year, and the amount of gold that’s mined every year is based on the price. When the price goes up, more gold is mined than the previous year. When the price goes down, the same in reverse. That doesn’t happen with Bitcoin. It’s a fixed amount: you know exactly what the supply is. There’s even less of an inflation problem with Bitcoin — there is no inflation problem with Bitcoin. So I buy into the argument completely that Bitcoin is money.
If I had to choose between [having] all my assets in Bitcoin or all my assets in dollars, I would absolutely choose Bitcoin without hesitation.
The Capital: During your panel, you said that fundamentals don’t matter anymore, only speculation does. Why do you think that?
Arrington: Bitcoin, I think, is the most perfect asset there is in crypto. And yet, even that [Bitcoin] is driven massively by market manipulation. There are people that have enough Bitcoin and understand the market well enough to move it. We understand enough about it to try to at least avoid losing money when it happens, but that is a problem.
At some point that needs to get fixed, or we’ll really have a problem even with the fundamental value of Bitcoin. People move it massively day-to-day, and it has nothing to do with capital flows — it has to do with people manipulating the market. Long term, that has to go away. Every other [crypto] currency is also massively manipulated, even more so [because] it has almost no fundamentals to back it up. It’s a sick industry in that sense right now.
The Capital: When you say fundamentals, what specifically are you talking about?
Arrington: Bitcoin has fundamentals in the sense that it’s money for all the reasons we talked about. When you talk about other assets, if you’re not talking about crypto, fundamentals in general [are about] having about cash flow.
If you think about stock in, say, Bank of America. Bank of America sells products for revenue, has costs, and then there’s profit left over. That profit is either returned to shareholders via a dividend or is returned to shareholders via stock buybacks, which are the same thing as dividends, just in the tax advantageous way. Or, they spend it on R&D, hopefully to make even more money in the future — all that drives the underlying share price.
With most of the crypto assets that we have today, there are no fundamentals, no sort of revenue. Binance has a coin that they will burn based on revenue: it’s not directly tied to it from a contractual standpoint, but at least it arguably has fundamentals. LEO is the Bitfinex coin that they burn based on certain revenues in certain parts of the business, so it has some fundamentals.
Nothing else has any fundamentals in it — it’s driven entirely by bullshit.
The Capital: In your view, does Facebook’s Libra have fundamentals?
Arrington: If it launches, it will be a stablecoin in the sense that it’s backed by fiat currencies. In that case, it would have them [fundamentals], it’s based on the underlying value of the currencies. Then, whether those underlying values of the currency actually have real value is basically a philosophical question about how you feel about money. But it’s not driven in the sense of an equity or debt instrument in the financial markets that have true underlying financial performance issues.
The idea of seigniorage is that every year there’s more of the currency to allow for a bigger economy. Every year, the amount of dollars increases a certain number of percent, and that extra currency is called seigniorage.
You’ve got this situation with stablecoins where they have seigniorage. Now with Tether, they have to be 100 percent backed by actual dollars and so they actually can’t do much with it. But there are other currencies like Terra in Korea that uses seigniorage to pay players in their network […] But even then, there are no underlying financials. It’s just free money they get every year by the nature of what a stablecoin is.
The Capital: Is there something in particular in the crypto space that you’re excited about?
Arrington: DeFi is cool. We do make some bets there. But like we talked about, that fundamental killer app, that Lotus 1-2-3 [IBM PC’s “killer app” in the 1980s] of the space besides Bitcoin — if somebody figures that out, I want to be an investor in it. Those investors will make unlimited amounts of money.
I spend all of my time actually looking for somebody to come up with that idea, and sometimes I think they found it, and sometimes I don’t. But so far, I don’t think any of them have.
This interview has been edited and condensed.
You can watch the live stream of the conference here.