The Children Yearn For The Fiat Mines
Hypergambling and the boredom of real compounding
This will be a relatively short brain dump but it’s something I’ve been thinking about a lot lately.
Arguing about whether to own BTC or ETH or SOL or HYPE or some other coin is one of the timeless traditions of crypto twitter. Any coin with reasonable staying power has its fair share of zealots and evangelists. What’s funny is that in general, all of these groups can agree on one thing: they are in essence short the dollar. While this is something those of us in the crypto have been banging the drum on for years, it’s become more obvious to the wider investing world over the last 12-24 months. “The Debasement Trade” is now consensus. But every trade we put on has a long leg and a short one, even if we don’t think much about the latter.
I bring this up because there’s a prevailing sense that we should be long degeneracy. Jez wrote an awesome piece that articulated a feeling many people – especially those in crypto – have had for some time but couldn’t necessarily put words to. Like many others, I found myself nodding along as I read all the ways in which this degenerate ethos is infecting parts of our lives.
An underlying belief we’ve long held at Compound is that institutional distrust wasn’t confined to just financial markets, and soon enough would start rearing its head in other areas: healthcare, energy, education, media and society writ large1. A lot of the undertones in Jez’s piece are adjacent (or in some cases central) to this core belief.
But I think what’s been overlooked or misconstrued a lot of times2 is the emphatic message in his last line.
Especially in crypto, we tend to lionize those who zero themselves out as if it’s some right of passage3. In some respects I tend to agree that ~in general~ until you experience this type of pain for yourself, it’s difficult to internalize it fully. But I also think the nuanced lesson from Jez was that rather than succumb to degening, you should look to own those things that benefit most from the future we’re moving toward.
But long degeneracy implies you are short something else. So what is the other leg of this trade…?
There’s a clear sentiment around CT, and increasingly around traditional tech & finance, that crime is legal. The insinuation being that scams, grifts and extraction are no longer hiding in the shadows the way they once were, but are instead more overt and socially acceptable. There’s almost an acceptance that crime is now a viable business model.
Joe Weisenthal from Bloomberg unironically wrote this recently:
A certain subset of crypto people were aggressively endorsing this framing.
“Yeah, what IS the difference between Nvidia and $USELESS really?!?!"
You can feel this same energy infecting more and more corners of the world4. At this point everyone has written something about 0DTE options, influencer pump-and-dumps, congressional insider trading, sports betting adoption rates, the reemergence of SPACs, memecoins and now DATs. All of this is framed as one giant cocktail of rigged markets and moral decay.
As someone who has largely benefitted from this admittedly uncomfortable shift in how markets are perceived and where society is moving, I’m pretty sympathetic to b16z’s take. Like many others here, I chose to get off the ride. A lot of young people feel trapped: the American Dream their parents grew up with feels increasingly unattainable. Housing is expensive, the entry-level ladder collapsed into a slot machine, and AI is allegedly about to eat all the jobs. Many young people I speak to about career paths are confused, not to mention the added mental warfare of living terminally online. Plenty of people (rightfully) feel the social contract has been broken.
I shared these two charts on twitter because they are perhaps the best explanation for much of what’s going on today.
I’ll spare you the TA on a sentiment chart but two things are hard to ignore: the proliferation of social media seems to have speedran the decline here, and COVID5 was a capitulation event.
I think a major contributing factor to this feeling is that wealth has meaningfully shifted from an earnings-based model toward an investment-based one. If you look at the proportional distribution of wealth vs. ~30 years ago you see some pretty stark differences:
Young Americans (<40 years old) held roughly twice as much proportional wealth back then as they do today
The same is true for middle-aged households (40-54) who used to own ~32% of the wealth but now hold just 20%.
Unsurprisingly, the group who has benefited most are the boomers: ~65% of all wealth is now held by households over the age of 60
The crux of this shift is intuitive: wealth and assets were previously concentrated among households with the highest income, and thus the strongest ability to save money and buy new assets. Today, that wealth is concentrated among households who have held assets the longest, suggesting the dominant share of value comes from owning previously purchased assets. A simpler way to frame this is that each dollar of income buys a smaller slice of the American Dream. This realization, be it explicit or implicit, is exactly why we see the mantra “every generation rejects the previous ponzi and creates its own”.
But two things can be true: I can believe the world is directionally moving toward a weirder, spikier and less linear future while also rejecting the idea that a young person’s best hope is to succumb to degeneracy and just spin the wheel.
History Didn’t End In The 1970s…And It Won’t Now
If we travel back to the late 1970s we can see a similar period of pessimism. Except in that case, the economy was completely cooked: double-digit inflation, gas lines around the corner, unemployment rising. The mood was so dark that the sitting President delivered his now infamous Crisis of Confidence speech where he said things like:
“Our people are losing faith…for the first time, a majority believe the next five years will be worse than the past five”
“The erosion of our confidence in the future is threatening to destroy the social and political fabric of America”
“There are two paths to choose. One is a path that leads to fragmentation and self-interest. Down that road lies a mistaken idea of freedom, the right to grasp for ourselves some advantage over others. That path would be one of constant conflict between narrow interests ending in chaos and immobility. It is a certain route to failure.”
Doomerism was literally mainstream. And I would argue at that time for good reason. But what happened in the subsequent decade? The 80s saw inflation tamed, the end of the Cold War, and strong economic growth leading straight into a boom in the 1990s. Anyone betting on decline probably sounded reasonably coherent at the time and then got completely railroaded by innovation, a resilient workforce and a socioeconomic expansion.
The same thing happened coming out of the Great Depression in the early 1930s. History is littered with examples of this type of resurgence but nobody wants to hear about stuff from 100 years ago. And the reality is that none of this historical perspective is meant to pretend everything is fine today. The challenges we face today are unique6 but suggesting this is some sink-or-swim inflection point I think is either naive or intentionally over-the-top.
It feels as if society now operates at an increased anxiety frequency, and it’s hard to argue social media isn’t a driving factor.
Get Rich Or Nihilistically Drift Trying
Social media platforms amplify the moral-emotional & negative content, so outrage is going to win out over nuance every time. This isn’t some type of conspiracy either. There are plenty of studies7 that show this type of language travels faster and further across social feeds. The net effect is a perpetual IV drip that “everything is broken”. And it is objectively true that some things are worse than they were in the past. But it’s easy to see how seemingly intelligent people can get one-shotted into becoming full-blown financial nihilists.
Why play a rigged game when the alternative is to lever up, spin the wheel and hope you hit?
In my opinion too many people have taken DegenSpartan’s famous quote as some sort of manifesto to live by. And the survivorship bias is so extreme that even though we all acknowledge this phenomenon exists, it still doesn’t change behavior8. The problem is, at some point most of the people chanting this tagline are going to wake up in a few years and realize two things: (i) they were early to a transformative technology that provided immeasurable opportunity & (ii) they squandered it by imposing an artificial deadline on when they had to “make it” by. Every few months some twitter KOL will tell you this is your last chance and the doors are closing in – this is bullshit. But the social environment we live in today makes it much more believable than it ever was before, and may very well be doing irreparable damage to young people9.
But long degeneracy implies you are short something else. So what is the other leg of this trade…?
If we return to this earlier point, what exactly is the short leg? I’m being a bit cagey because there are many answers to this question, most of which I’d probably agree with...
Short USD
Short traditional employment & the career ladder (wage cuck)
Short social mobility
There are valid arguments for each of these, and the real answer is that it’s complicated. But as I said earlier, I think a lot of the core message10 is inadvertently warped in a way that leads people down the doomer rabbit hole. And my sense is that the majority of people who have begun this descent are effectively short agency.
It is an intellectual short position on human adaptability, creativity and ambition. And to me it’s one of the most alluring yet dangerous ways to frame the world, especially to young people. It suggests the genie is out of the bottle for some inevitable future where humans are sorted into either an elite utopian status or the permanent underclass living like the Tailies in Snowpiercer. But that line of thinking presupposes we have no discretion over how the future unfolds. It is a defeatist view. Allowing this brain worm to infect you is the spiritual equivalent of getting bear-holed. And let me tell, that is not a place you want to be.
obligatory VC “writ large” usage
to be clear i think this misinterpretation is from readers
even though we caveat it with “but don’t forget survivorship bias”, this just doesn’t resonate or seem to matter to most
and especially the online world
and its aftershocks
they almost always are
everyone knows we should eat healthy & exercise and yet obesity rates are 30-40% in the US
this sounds kind of preachy which is cringe but i do genuinely believe this and have had conversations with tons of these types of people (both in crypto & normies working at trad tech/banking jobs)
own the house