A lesson from The Godfather as Wall Street backs crypto assets it once dismissed as a ‘fraud'

Irish Times

2 days ago

One of the joys of writing a
weekly column
is the unusual tributaries explored, often sparked by real-world events. Today I've been watching old clips of The Godfather, in particular
Marlon Brando's
extraordinary performance as Don Vito, head of the Corleone family. In one of the film's subplots, Vito shuns the narcotics trade, preferring the steady vice of gambling. From a moral position, he rejects family involvement in the more lucrative but dirtier business of drug dealing. Despite the old man's misgivings, eventually his sons get the family into drugs because that is where they'll find new and apparently easy money.
Easy money has always been a powerful financial aphrodisiac. Scenes from The Godfather come to mind as we see yet another member of the Wall Street establishment embrace what they had previously shunned:
cryptocurrency
. This week, one of the world's most important bankers,
Jamie Dimon
, chief of
JPMorgan
, who once described crypto as a 'fraud', suggested the bank might use clients' crypto holdings as collateral for loans in dollars. This is a massive U-turn.
Meanwhile, Donald Trump, who also previously dismissed cryptocurrencies, has increased his attacks on the Federal Reserve, the institution charged with preserving the integrity of the dollar, the very currency that the crypto enthusiasts see as the problem. For the more extreme advocates of cryptocurrencies the death of the dollar (the world's most successful state-sponsored public money) is the ultimate aim. But for the elected US president, the strength of the dollar – and its institutions – should be the ultimate prize.
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If you want to understand America and politics, read The Godfather
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The prospect of easy money has got in the way, affecting Wall Street's judgment and the president's back pocket. Now they are on a collision course with one of the few, previously immutable signs of American power, the dollar and its custodians. Once more, the lure of quick and easy money is proving too much.
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Cryptocurrencies and the future of money are fascinating topics. A useful way to look at crypto's growth is not as some new form of money, but as a well-financed lobby group. If there is easy money to be made, the quickest way to do this is attack regulators, and ultimately enlist them, while spreading the new gospel.
In the beginning, crypto was the ultimate anti-Wall Street phenomenon. Crypto capitalised on an era – after the 2008 crash – when public trust in democratic institutions and markets reached a new low. The promise of crypto was a new democratic, egalitarian and honest form of money, and its manifesto involved a kind of revolutionary appeal – smashing the establishment's hold on finance and opening up the world of money beyond Wall Street.
At least, that was the spin. Rather than being issued by allegedly corrupt governments, some cryptocurrencies, such as Bitcoin, are governed by incorruptible algorithms, underpinned by a new technology called blockchain, made possible by the data revolution.
Bitcoin in particular, and crypto currencies in general, were supposed to be used to buy stuff – that old 'money as a medium of exchange' thing – but this has not transpired. Instead, it has come to be seen as a store of wealth that many millions of people believe in – which is fair enough if that's what they want to put their financial faith in.
Most crypto is nothing more than a private printing press for the TikTok age. Bitcoin has a fixed quantity issued, but it is still nothing more than a financial Pokémon card backed by nothing except hype
As its price rises, more people will be attracted to it, despite it having no fundamental value or income accruing to it. How can this be sustained? Well, the best way to keep an asset price inflated is to have more and more people with a stake in it. In time, there will be a significant group of people with an interest in maintaining its value, talking it up. They will lean on regulators to bolster, protect and disseminate it and ultimately drive up or at least maintain its price.
The best way to do this is through extended distribution channels. To protect their own wealth, the Bitcoiners have conscripted Wall Street to market Bitcoin to the masses via exchange traded funds, a mechanism that allows investors to buy and sell Bitcoin in greater numbers, and more transparently. Bitcoiners have got into bed with the very firms they once lambasted as corrupt. The original alternative protest investment has gone mainstream.
Allying with Wall Street and lobbying regulators is a long way from Bitcoin's original impetus. This was a bet on the complete collapse of the western political order and the end of money. Early adopters were part of a doomsday cult, believing regimes were about to collapse under hyperinflation that would devalue all major currencies. Bitcoin would then emerge as the great saviour. These Armageddonist tendencies mean Bitcoin's more extreme promoters tended to cheerlead political forces that might undermine the West. Finding them on social media applauding regimes such as Putin's Russia is not a surprise.
Don't get me wrong – I am not offering financial advice. People can do what they want with their money. My point is that Bitcoin is not money in any definition I understand. Bitcoin is more a financial lobby group than a new form of money. Like most lobby groups, the game is to force its agenda on the authorities to enhance the interests of owners who stand to benefit most. Alarm bells should ring when very rich people – in this case, early adopters who bought Bitcoin for pennies and have therefore become astronomically wealthy – lobby the state to legitimise something intended to be illegitimate, and seek to enlist and enrich Wall Street in the process.
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Bitcoin's real value is based on the greater fool theory
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Never in their wildest dream could crypto promoters have imagined the US president and his sons would become the biggest promoters of a token that sought to undermine the dollar. But that is where we are. In recent months the Trump family has increased its wealthdue to the surge in crypto valuations. The lobby group is running policy. Remember most crypto is nothing more than a private printing press for the TikTok age. Bitcoin is different as it has a fixed quantity issued, but it is still nothing more than a digital token – a financial Pokémon card – backed by nothing except hype.
Where the president goes, Wall Street follows: profits drive everything and we get to a point where major investment banks, funds and finance houses are getting behind digital tokens which they once, rightly, dismissed as a fraud. The history of money tells us such episodes rarely end well.
See The Godfather. Life imitates art, imitating life. In Trump's America, what is fact and what is fiction have blurred before our very eyes.