NFTs
The aura of cryptocurrencies (and the death of NFTs)
Walter Benjamin does cryptography
Group of men
A Case for Cryptography (via Walter Benjamin)
I got a brief glimpse into what those on the front lines of crypto experience every day when I did what I considered quite uncontroversial post on LinkedIn about the speed (or lack thereof) with which cryptocurrencies have been adopted into mainstream commerce. The response to my post contained a wide range of different views, but it was notable that Bitcoin supporters were more vociferous and, at times, downright aggressive in their tone, accusing me of a deliberate attempt to destroy their blockchain revolution or of blindness. incurred by remaining in the pocket of Big Fiat Currency for so long. This was a shame as I tend to be one of the most enthusiastic voices when it comes to crypto discussions on the trading floor.
It seems symptomatic for our time that positions when it comes to cryptocurrencies have become so quickly entrenched – you are either violently for it or totally against it – that there is very little room left for nuanced discussions about the benefits and harms of this revolution for the world of cryptocurrencies. money. At the Group of men, we approach crypto as we approach any new asset class, carrying out a huge amount of research, carrying out extensive studies on potential risks and how to mitigate them. We then moved into live trading and have now incorporated Bitcoin and Ether into a number of our systematic strategies.
One of the champions of encryption within the company is Tarek Abou ZeidPartner and Senior Client Portfolio Manager in AHL Man. Tarek spoke eloquently about Bitcoin and Ether at our Unconventional Investing Conference at the Whitney Gallery last week. He made a comparison between NFTs – lots of laughs about the amounts paid for Bored Apes and real estate in virtual worlds – and cryptography.
A bored monkey
Bored monkey
Tarek’s argument centered on the relative price action exhibited by these speculative assets and cryptocurrencies. He showed that NFTs followed price trajectories similar to countless historical bubbles, from tulips to railroads to South Sea stocks. They spiral upward as excitement builds and then, when the bubble bursts, they crash spectacularly.
Bored Monkey Accident
NFT minimum price
Bitcoin, Ether and other more liquid cryptocurrencies, however, have behaved quite differently. In Tarek’s words: “A bubble is a persistent deviation from fundamental value… there is a distinguishing feature between currency price behavior and classic historical bubbles: crypto downgrades have (until now) always been followed by recoveries.”
Price recoveries in Bitcoin
CoinDesk
Its price action more closely tracks any other developing asset class in its early days – from emerging market equities to high-yield debt, or, looking further back, to the volatility exhibited in gold prices when it was accepted as a financial asset in the early years of the last century. The difference in these assets is that despite the significant losses they suffered as investors went through cycles of greed and fear, acceptance and rejection, they always staged a recovery. It’s a thesis that gives significant weight to the notion of crypto as a nascent asset class undergoing the early stages of a path to maturity.
After his talk, I pointed Tarek to a 1935 essay by the great Walter Benjamin: “The Work of Art in the Age of Mechanical Reproduction.” In the essay, Benjamin talks about how the arrival of the mechanical printing press changed the way people thought about works of art. Benjamin writes about the “aura” of the original painting – the Mona Lisa, for example – which is linked to its place in time and space, to its indisputable authenticity. Rather than diminishing the aura, he continues, the mass printing of works of art only served to accentuate the power of the original’s unique status.
It seems like a useful model for thinking about the divide between NFTs and cryptocurrencies, both of which, I would argue, attempt to use blockchain technology to establish a source of value. Benjamin says: “that which withers in the age of mechanical reproduction is the aura of the work of art”. The Mona Lisa on a college dorm wall lacks almost none of the power of the work hanging in the Louvre. The original retains all the power. NFTs simply have not been able to overcome this fundamental observation. Their problem was that they tried to create a virtual aura in a world of near-perfect replicability. No one could tell just by looking if your Bored Ape is different from the copy I just cut out on my laptop.
I would argue that cryptocurrencies have achieved something different by removing any physical manifestation of their unique status and instead focusing entirely on the concept of scarcity and its connection to value. Unlike NFTs, which attempt to imbue digital assets with an aura through provenance but fail because they remain easily reproducible, cryptocurrencies derive their digital aura from the abstraction of their creation: complex mathematical processes and decentralized verification mechanisms. This abstraction not only ensures that each individual cryptocurrency maintains its share of authenticity, uniqueness, and scarcity, but gives the entire crypto world an air of ritual and almost religiosity, something Benjamin said mechanical reproduction had stripped from the art world. .
Cryptocurrencies, as an asset class, are of particular interest to our systematic strategies: they are increasingly liquid, move in recognizable patterns that work well within a trend framework, and are increasingly the focus of institutional interest. They also offer genuine diversification, showing little correlation with other assets.
Crypto in Trending Strategies
Bloomberg
Benjamin’s essay, linked here, is a beautiful example of how truly top-notch thinking can be adapted and applied to new worlds unimaginable to its authors. So the next time you check your crypto wallet, think about one of the great minds of the 20th century and the aura that seems alive and well in digital currencies.