Investment as Consumption: Why Crypto Works

 

A couple of months ago now I bought £200 worth of Ether before using that to buy the crypto currency EOS. Actually, tokens for EOS, which I may or may not have the right to redeem when, and currently more likely if, the currency launches this summer.

The cryptocurrency market reached $700billion at the start of January, and despite sharp falls at the time of writing (06/02/18), it seems clear that blockchain based transactions have a future beyond the bubble.

Whatever one’s views on the technology and its application though, the mechanics of creating a near trillion-dollar industry in the space of a few years clearly warrants examination, especially as a new wave of young investors enter the market.

To date, analysis of the trend has tended to fall into 2 camps. The first takes a pseudo psychological approach to why people invest, citing herd mentality and theory of mind, the fear of missing out, as some of the more ‘human’ reasons why people put their money into crypto currencies.

On the other hand, the sociological train of thought treats crypto as pure theory, as if a new wave of investors were fintech revolutionaries ready and waiting to overthrow the world monetary system. Nigel Dodd’s Social Life Of Bitcoin (2017) is evidences this slightly sensationalist approach:

‘’We could just as easily view Bitcoin users in anarchist terms, as the direct descendants of the Cyberpunks’’

From an anecdotal perspective there’s something about this rhetoric which doesn’t ring true with the experience of the young, more casual investors I speak to, of the third of millennials who would rather own bitcoin than stocks but are more than likely never to use the currency for a transaction.

Whilst there’s a place for the theoretical piece, it misses an appreciation subtle social drivers to purchase, the factors that have allowed crypto to mesh popular culture, consumerism and investing.

 

Investors need to know how gains could change their lives

Young investors in crypto have motivations that are largely similar to those of other investors: they want the money they make from investing to have a meaningful impact on their lives.

To generalise, when older investors invest in stocks, or anything else for that matter, they tend to have a tangible and real world gain in mind if that stock rises. This could be paying down the mortgage, buying a car, retiring earlier – all things they can imagine within a relatable time frame. It’s these things that make investing an appealing prospect.

Younger investors want the same appeal to tangibility. For the urban, metropolitan young, the only difference is that to buy or do something meaningful with the fruits of their investment (namely purchase a home) would take a dramatic and staggering percentage rise. The kind only provided by crypto-currency.

New cryptocurrencies are savvy in the way they advertise this to investors– the most popular tagline is ‘’if this rises as fast as Bitcoin you’d have x by the end of the year’’, a necessary short-termism and change in temporal mind-set that’s backed up  by a cursory glance at organically forming ‘pump and dump’ groups of Telegram, where discussions of ‘5-minute percentage increases’ are commonplace.

In short, the rise of the cryptocurrencies is the start of a reaction by a generation that don’t have the mechanisms to do anything meaningful with their money.  That’s a trend that will continue as wages stagnate and house prices rise.

The Coinbase front page

Democratising the language of investing

One of the features of the crypto craze has been its ability to engage an audience of people who haven’t previously traded.  Low fees and intuitive sites like Coinbase have enabled investors to buy small amounts of currency which, given the rapid increase in price that some have experienced, still feels viable and exciting.

This move towards opening up markets to increasingly small investments is a trend already well established by services like Moneybox (UK) and Acorn (US) which round up purchases made on card, allowing users to invest as little as a penny into investment funds every time they spend money.

More than simply the ability to invest money though, crypto currencies have opened up the world of associations that come with stock and currency trading. Success, prudence, wealth, expertise are all performed in conversations about currencies.

You’ll regularly hear people with no investing experience talk with confidence about their research and unique insights into crypto markets. With an ethnographer’s eye it’s possible to discern the style of speech for these pronouncements changing to a poised, clerkish and assured tone.

Whilst there’s a group at the top of the crypto market, whales who have become staggeringly wealthy, new investors still have the power to tap into the exact same rhetoric and associations that come with traditional investing.

They want their purchase to at once give them access to a world of fellow investors, new lexicon, humour, and the sense of empowerment that comes with the potential to have their lives changed by investing success.

Crypto ‘Sticker Pack’ for Telegram

A social phenomenon

Perhaps the most striking element of the crypto craze has been its quality as a talking point, discussed in pubs, workplaces and at restaurants. To buy in, is to buy in to a world of social interactions, be they tongue in cheek (see the meme culture around bitcoin) or overtly serious.

People have suggested these kinds of discussions are similar to any investment bubble, most recently the dot-com craze of the late 90s. The difference here is the ease of investment, a friend could purchase bitcoin within 10 minutes of sitting in on the conversation via their smartphone.

One of 2017’s most popular crypto currency memes

Investment as Consumption

These features of crypto currencies have had the unintended effect of making its purchase feel like a consumer, rather than an investment decision.

We can see this evidenced in the way new currencies are advertised. Whilst publicly traded companies and investment funds have long been heavily branded, blockchain investments evidence a subtle shift, in which the focus of marketing and advertising is geared towards the purchase of the currency itself rather than touting its relative merits.

This is possible, firstly because of the relatively low level of expertise many people have around the efficacy of different blockchain applications. Secondly though, it reflects the facets of a social phenomenon that groups proponents of a particular currency engendering fierce loyalty.

Because of the insular nature of currency discussion on Telegram groups and other social media, uncertainty around the investment, and the often all or nothing approach this new group of investors are taking, people feel tethered to particular currencies, making them social and financial supporters rather than just investors.

 

Screenshots from Telegram ‘Pump and Dump’ groups

Performing investment

All the above has meant the onus of investing has shifted onto the point of purchase, not the information gathering or the eventual gains. Buying crypto currency has become performative in the sense that it’s the act of purchase itself that is the important thing. Simply holding bitcoin is enough to allow you to assume the identity of an investor, a supporter, an expert.

There’s a set of lessons and requirements for a generation that finds it hard, boring or plain disinteresting to undertake traditional investment. For them an investment is both a financial and social asset that they need to be able to leverage immediately. 

They want their purchase to at once give them access to a world of fellow investors, new lexicon, humour, and the sense of empowerment that comes with the potential to have their lives changed by investing success.

// Alex Rice