Digital assets and the political media have wrapped around each other, a double helix of increasingly epic proportions. It has not always been like this, but a glimpse of where we are today, before discussing the portal that’s opened behind my casomputer chair that I am about to step through -
Central bankers posting their thoughts on the daily to the derision of random armchair Austrian economists on the internet. Chairman Gensler getting ratio-ed on every post about financial regulation. Trump getting banned by a bearded hippie who is now a full time Bitcoin shill. Bloomberg reporting on Tweets days after they happened. Meme stocks. Purely mimetic assets becoming worth $100s of billions (yes, Crypto, but also HKD etc). Whether it’s crypto or CBDCs – assets are becoming increasingly indistinct from the internet and the stories therein (and thereof). The user experience of buying a Shib token or a Shiba Inu stuffed animal on Amazon is functionally the same, as is the economic output or underlying ‘culture’.
It’s not a bug. It’s not just a feature. I am speaking to you of the status quo. The system. The system by definition cannot be ‘weird’ because there is no alternative. We can act like reverting to historical systems is possible, but it is not because the new system emerged due to causal economic superiority which compounds by the day, has become entrenched in politics and will not revert naturally (or voluntarily, for that matter - because people benefit from these systems). Revanchist ‘retvrn’ rhetoric is fun but cannot take place in society without atrocious violence that is unlikely in a post-Patriot Act, endlessly surveilled world, bought and paid for by corporations turned into political overlords by Citizens United.
The system is almost ipso facto, normal as fuck. And I think it is poisoned (more on that later). We have moved in phases that brought us here. Drastically oversimplified, but— Phase 1- the traditional media worked with the establishment to both help fund the government and ensure social cohesion in war. Phase 2- the traditional media turned on the establishment ala Vietnam. Phase 3- the traditional media became fractured, and mostly became talking heads spouting off their opinions. Networks lost power to personalities. Phase 4- the talking heads left the traditional media to create their own franchises. This got super charged by social media. But these talking heads still fundamentally “existed” within the establishment (i.e. Bloomberg et al) and relied on news reporting organizations to exist.
This is when something weird happened - I call it Phase 5- basically, the news moved on to Social. Twitter became the better primary source versus the WSJ, or Bloomberg - because it was faster, more comprehensive, and more emotionally raw (largely as a function of effective cameras on mobile phones and faster internet connections). It also included the context of market participants. This was a user experience shift because “digital first” commentators could retweet primary sources. Because the sources didn’t exist in the real world, they existed online. And even more importantly - the sources were real people who generated natural engagement from their own personas.
You see it frequently even now. Financial influencers will retweet a Central Bank and get 10-20x the amount of engagement as the original post. They are amplifying and making the news because the algorithms would prefer every rate hike was announced by egirls or a jacked ex-NFL self-help guru who has mastered syncopated tweeting. And once again, forget if this is good or bad for a second - because now that it’s trending it’s more or less a mathematical inevitability that it will continue. And there’s nothing you or I can do to stop it.
Phase 5 had become firmly entrenched by 2019. But then in 2020, during covid, we jumped the shark and moved into phase 6. A step even past the medium outpacing the message. The comments and Zeitgeist quite literally became the news. It’s now flowing in reverse. The traditional media is reporting on things that emerged entirely from the Aether and were not in response to any real-world event. Dogecoin can begin trending, infect Elon Musk’s mind, causing him to buy billions of dollars of it – which of course generates headlines. What is different from phase 6 - is that the stories stopped coming from the meatspace, and started originating from the cybersphere.
This isn’t some Malcolm Gladwell “aha so this is the missing puzzle piece” of some shitty bestselling insight I want to hit you with. Or a web3 startup pitch. it’s just a description of where we are - worth stating because we broadly still don’t want to recognize the phenomena as legitimate. You see it all around you - traditionalists seething, just like they have seethed at every prior transition in the media state for the last 50 years. And why wouldn’t they be upset?
The idea of capital markets, or the global information system being delegated to a group of anonymous weirdos has led to all kinds of bad externalities that we are not used to dealing with. The medium quite literally not only became the message, but it became the story itself. It became the Sea of Stories and the authorities aren’t happy with any such Haroun who speaks the secrets of The Story Source. As we tragically learned in recent days (praying for Salman - the Sea of Stories was probably the book that influenced who I am the most, and influences me writing this to you at this very moment)
Reflexive, self-generating stories are one thing when it comes to the news, and something else entirely when it comes to reflexive financial markets which have been prone to bubbles and feeding frenzies since time immemorial without the help of social media.
That’s something people outside of the e-commerce world don’t fully grock. It’s politically and culturally popular to assert that we have free will. But in aggregate, if you’ve ever run a scaled ecommerce advertising campaign - you know that free will is a rounding error. Almost definitionally, individualism cannot exist in aggregate - similar to the notion in markets that managers who comprise an index cannot collectively outperform said index. Random factors get smoothed out, and even punished as index performance in finance (or clicks / social clout in real life) becomes the end all be all. The signal is a “zeitgeist” and it manifests in specific, predictable ways that can be iteratively optimized. And the zeitgeist becomes an all-powerful Beast, in and of itself.
Put less dramatically - latent preferences emerge randomly and evolve in an unpredictable way - but once a preference is made public and receives a large number of clicks - it’s highly likely to continue more or less indefinitely. This might have philosophical implications but once again - those are almost irrelevant, because there are vast economic engines of digital advertising and even more vast armies of people working to spin these flywheels. So here we are. All the bad human behaviors that lead to historic financial bubbles now have been placed in the hands of very-online, and often anonymous actors. There was a barrier between the dirty throngs and the sanctified halls of Wall Street before this. This barrier has occasionally been vaunted over in the past, often with disastrous implications. But the barrier has never been removed entirely.
Our global society has reached historic wealth inequality, leaving a heavily online “leisure class” who can deploy billions of dollars of capital betting on dog coins for the clout. Or front run its users then tweet inanely about excesses of venture capital in the name of “effective altruism”.
None of this is self-correcting. Indeed - it is self-reinforcing. Because the wealthy keepers of the attention machine define their self-worth inside the attention machine and have the financial resources to gamble inside of it. The more benign “Patricians” can fund new toys, like Clubhouse, or Web 3 / metaverse domains. Or they can even make an outright bid for the entire town square where they can redefine the narrative around their social value. But on the darker side of the moon, the more gambling the financial social machine generates - the more profits can influence political outcomes - as we saw in the case with The Mercer family (a la Renaissance Technologies) playing a pivotal role in the election of Donald Trump. And I believe we will increasingly see from Ken Griffin (owner of Citadel Securities, arguably the largest beneficiary of the meme stock era) who has been going on numerous speaking events sounding very, very political.
The meme stock traders vilifying Griffin have it all wrong. He is their single largest advocate and will deploy near infinite sums of money to ensure the system self-reinforces, the Colosseum Stays Open, and that attention becomes ever more inextricably linked with the financial machine. As Elon Musk - likely future owner of Twitter - put it, ever so elegantly - “The most entertaining outcome is the most likely”
The point is - the monkey is out of the cage. And the specific monkey I am referring to has two sub monkeys. Like a stupid Simian Janus I am evoking because I am too wired to write well. 1} financial markets have become digitally native and will stay that way - ranging from A] user experience ala Robinhood B] culturally - a la crypto, WallStreetBets, or generally a culture of gambling / memeification of economic topics C] technological or format innovation - i.e. digital tokens that can serve both as assets and consumer products. Whether or not this occurs on a CBDC, or on Ethereum, or some IBM run hyperledger administered via the Libra foundation. 2} the source of news is digitally native and will stay that way. This is what I meant by us being in phase 6- where online interactions have in essence, become the news. Even interpretations of the news are more important than the news itself, and these interpretations are rendered by - essentially random- charismatic individuals.
So given this odd ape, and the title of this increasingly wild diatribe - this begs the question - what is Phase 7?
I think we all know intuitively we are not in an equilibrium here. That things are moving at an increasing pace not towards order, but towards something different.
The reason why this equilibrium doesn’t work is because there’s a credibility problem innate to phase 6 (wherein the news is both created and broken by random entities). One of the most popular voices in crypto is Arthur Hayes, an individual who has been placed under house arrest for violating international financial laws. Three Arrows Capital was not only a popular, but a vastly well capitalized voice that also had its own money invested in its beliefs. But the beliefs were wrong, poorly risk managed, and blew up.
A timeless heuristic since ancient times is that you can trust the wealthy because they’ll find a way to re-narrate history to fit their agenda. But that world order was predicated on a now false assumption - that the wealthy control the distribution of information. They no longer do. Archegos, Tiger Global, 3AC, Melvin and countless others falling victim to the chaos paints a clear picture that financial wherewithal can no longer serve as a meaningful hold.
But then, what is the alternative?
The alternative seems to be charisma combined with work ethic. People who choose to place themselves “out there” and become conduits for information.
People who generate clicks better than others as a function of their online identity, by default, will become the gatekeepers of information for the digital era. Political information, financial insight, morality. You name it.
News publications simply cannot compete with the core base reality, namely that random people, mediums, and algorithms emerge which will generate a higher and thus more economic clickthrough rate than they can. Digital Darwinism. Once again - and I have a hard time with this too - it’s not about what should be. It is about what is likely, and what is reality.
And yes, despite the “ economic reality”, there are severe flaws with removing credentialism from our information systems.
Think of journalists covering a war. They’ve been trained to do so. They know how to go into war zones. They soaked up knowledge and contacts from predecessors who had operated in war zones. They have contacts within the government to ensure that what’s being said won’t put troops in danger, and in exchange get added context for their work. To imagine that random distributed individuals on the internet would be able to deliver the same quality of coverage, or have decades of required network operations is naive.
Credentialism is a popular term in the online era because we like to imagine that we are all experts and are entitled to their mantle even if we have none of the same resources. It has become popular, for example to discredit the work of sell side financial research groups, such as those at Goldman Sachs. But things like access to institutional grade data, research, and company C suites give them a massive edge covering financial topics that cannot be easily replicated by competitors in the ‘distributed online world”.
“But the sell side is just shilling IPOs”. While this is true to some extent, there have been regulatory structures and firewalls put in place that prevent completely blatant security manipulation or bad actions. It’s not perfect but it’s the result of decades of evolution. And when it goes wrong (as it frequently does such as in the case of the 1MDB scandal) - multi billion dollar fines get doled out and entire armies of compliance specialists get spun up to ensure further problems don’t arise. And these compliance / enforcement mechanisms were valuable despite being invisible. And that tells us where this is going.
Eventually people exerting their charisma to “click reality into being” in Phase 6 will lose the trust of their adherents. They’ll be forced financially to sell out to corporate overlords or succumb to greed and compromise their integrity. Weird cults will form but will be subject to dishonest cult leaders who steal their funds and exploit their members. Or they’ll start drinking their own koolaid, bet their own money and that of their adherents, and blow up their prime brokers.
Many of the pure story tellers, the ones who mean well will be slowly ground down into shadows of their former selves by a cruel judgmental world. And the best among us, like Salman Rushdie - intent at telling the truth at any or all costs - will simply get quite literally executed in public by their tyrannical overlords.
And I want to pause here to say - we have to protect these people, the true conduits of truth, the gentle souls who want to bring the light of knowledge to the world, at all costs for they are the best among us.
And yet, despite these pretty words - utopianism will give way to severe cynicism. We destroyed the established order and replaced it with a shitty clickbait version of pre-industrial, pre-regulation capitalism. There is beauty, and effort and struggle to make something new. But scale invariant malfeasance, blow ups, frauds and bad actors will overwhelm it financially due to the pure incentives of the actors.
And I think, you might recognize, that is where we are now. We are at the end of phase 6. The blind now understand they are being led by the blind and the evil. The visionaries are seen as delusional, or criminals. But the traditional media, and the old world. what came before… is now too dead to come back. We are playing a game though we no longer believe in its moral merit. we take solace in that we are assured of its statistical validity.
The financial mechanisms are too firmly in place in the new “influencer economy”, the advertisers are setting their budgets, externalities be damned.
It’s true in virtually every industry … okay but what the fuck is Phase 7 Phase 7 is the Digital Colosseum.
It’s the recognition we aren’t here for our own benefit. We are not here for Democracy, or Saving the Climate, or Securing Human Rights, or Defeating China, or whatever the flavor of the day is. We are here because a series of random digital interactions brought us here. But now we see we have become trapped. Phase 7 is looking at what we’ve built, opting into it consciously, with a willing disregard for its value, for its technical majesty, for its daily dose of dopamine. It’s seeing its critical flaw and be willing to go all the way, with every tool available. Words, financial markets, stories, pain, love, hate, technology and the absence of those things.
It is seeing that we have poisoned the Sea of Stories, and That This Is the Biggest Problem Of All. It’s shedding a tear at the execution of one of our generation’s great story tellers who defined so many of our childhoods.
As I stretch before stepping through the portal - knowing I have left you with abstraction, and not without a twinge of guilt for not having done, or shown more - I leave you with a quote from Haroun and the Sea of Stories:
“Khattam-Shud,’ he said slowly, ‘is the Arch-Enemy of all Stories, even of language itself. He is the Prince of Silence and the Foe of Speech. And because everything ends, because dreams end, stories end, life ends, at the finish of everything we use his name. “It’s finished,” we tell one another, “it’s over. Khattam-Shud: The End.”