The crypto-skeptics’ voices are getting louder


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Maybe it was when the author of the influential book “Black Swan” said bitcoin was worth “exactly zero.”

Perhaps it was the assessment from a billionaire hedge-fund manager that cryptocurrencies are a “limited supply of nothing.”

Or it could just be one of those cultural shifts that happens when one too many celebrities tries to convince us of something.

Whatever the turning point, a growing group is sounding dire warnings about the dangers of cryptocurrency investment. Call them the crypto-catastrophists — bloggers and billionaires, mathematicians and economists, computer-scientists and 2008-crisis prophets and, even, a 2000’s-era Hollywood personality — who have all come together to unleash a warning to government and citizens about cryptocurrency investment. And their voices have, slowly, begun to rise above crypto’s evangelist din.

“For a long time it felt like just a few of us shouting from the rooftops,” said Nicholas Weaver, a computer-security expert from the University of California at Berkeley, who has long mounted both a financial and ethical case again crypto investment. “But I think there are more of us now, and hopefully that will help us be heard.”

On Wednesday, Weaver was one of 26 influential technology personalities to direct those cries to Congress.

In a letter addressed to Senate Majority Leader Charles E. Schumer (D-N.Y.), Senate Minority Leader Mitch McConnell (R-Ky.), House Speaker Nancy Pelosi (D-Calif.) and other congressional leaders, the group outlined what it described as potentially grave dangers of cryptocurrencies.

“The catastrophes and externalities related to blockchain technologies and crypto-asset investments are neither isolated nor are they growing pains of a nascent technology,” it said. “They are the inevitable outcomes of a technology that is not built for purpose and will remain forever unsuitable as a foundation for large-scale economic activity.”

The missive — which was titled “Letter in Support of Responsible Fintech Policy” — did not spell out many policy proposals. But it was clear the group wants dramatic moves to rein in, if not outright eliminate, crypto investing.

“We need to act now to protect investors and the global financial marketplace from the severe risks posed by crypto-assets,” it said.

On Thursday, New York Attorney General Letitia James (D) joined the skeptics, sending out an “investor alert” about the fundamental nature of crypto risks.

“Even well-known virtual currencies from reputable trading platforms can still crash and investors can lose billions in the blink of an eye,” she said, citing conflicts of interest and limited oversight. “Too often, cryptocurrency investments create more pain than gain for investors. I urge New Yorkers to be cautious before putting their hard-earned money in risky cryptocurrency investments that can yield more anxiety than fortune.”

The alert goes further than a warning James issued last year, which focused more sharply on explicit crypto scams.

The catastrophists are, to be sure, still a shaggy group. Members have few formal ties to one other, engaging mainly on social media — a sharp contrast to the coordination by adversaries like crypto platforms FTX and Coinbase, which form an industry that spent $5 million on lobbying efforts last year.

But they can inject urgency into their plea, gathering growing followings with dramatic descriptions of worst-case scenarios. Many traditional economists are not outspoken, they say. And so it is up to them to take up the role of Jeremiah in Jerusalem, warning of a Babylonian reckoning for a society that has slouched into crypto sloth.

Besides Weaver, the letter’s signatories include Harvard cryptographer Bruce Schneier, Google engineer Kelsey Hightower, Netscape Navigator pioneer Jamie Zawinski, the England-based blogger and author David Gerard, “The O.C.” actor Ben McKenzie and Molly White, the popular blogger and social media presence who was one of crypto’s earliest critics.

But the larger group of catastrophists goes beyond the signatories and includes a number of finance-world veterans who helped foresee the 2008 subprime-mortgage crisis, including the economist Nourel Roubini, the hedge-fund manager John Paulson and Nassim Taleb, the author and mathematician who wrote the best-selling “Black Swan,” which posits that many of the most impactful events of history were unpredicted.

While disparate of profession, the catastrophists have come to very similar conclusions about the 2020s digital-coin investment craze. A crater is coming, they say. And it’s going to be big.

Many others of course don’t agree. Mayors from Miami to New York are embracing crypto with vigor, while both forward-looking financial firms like Silvergate and blue-chip tech companies like IBM have thrown in with it. A trillion-dollar market capitalization is not going away anytime soon, they say, nor should it.

But the catastrophists say the market’s size only reinforces the stakes. They cite a lack of regulation, a product devoid of inherent value or cash flow, a system whose solvency depends on an ever-larger number of new players and markets manipulated by a few financial elites. All of that, they say, makes for a de facto Ponzi scheme that can only crash.

“You have extremely shoddy traders who are taking advantage of an unregulated market, and they want to skin you and they want to skin you again, and then they want to skin your friends, family and pension funds until eventually there’s nothing left to skin,” said Gerard, a longtime financial blogger and author, offering a colorful version of the catastrophists’ message. “So I and others feel like we need to stand up and say something about it.”

It was a remote prehistoric time — all the way back in 2021 — when cryptocurrency seemed to be ascendant in the mainstream. A new Pew Research study had concluded that 16 percent of Americans used or invested in crypto. Venture capital giant Andreesen Horowitz was humming with a crypto fund. Jack Dorsey was telling Cardi B that bitcoin would replace the dollar.

Shortly after, Larry David went viral with a Super Bowl commercial that only Luddites avoided crypto, while Matt Damon suggested non-crypto investors were cowards. Suddenly that nice couple at the block barbecue was tossing off words like “stablecoin.”

But a crash of Terra’s luna by more than 95 percent, a drop in bitcoin of 56 percent off its all-time high and a continued hammering of their message seems to be tilting the narrative in the catastrophists’ direction. The climate now seems more conducive to the group’s message than ever — maybe.

“Those voices are certainly getting louder,” said Edward Balleisen, a Duke professor and historian of financial bubbles. “But the classic thing in any bubble is there are going to be a lot of people who wave it off and say ‘It’s just a correction’ so keep going.”

He noted that the catastrophists must contend with beloved names sending people the opposite message. “I mean, even with all these warnings you’re going to have Stephen Curry on TV in the NBA Finals this weekend telling people how easy it is to invest in crypto,” referring to the Golden State Warriors star’s high-profile FTX ad.

Of course, it’s not at all resolved that crypto-catastrophists are right, and a whole industry is predicated on the idea that they’re not. Crypto executives point to a long history of skepticism where new technology is concerned. Befuddlement characterized Web 1.0 in the mid-1990s, they note, a position that now seems laughably out of touch.

To the skeptics, though, far more economic fundamentals are at play here. They argue that the lack of inherent value makes crypto a “zero-sum” game in which for every winner there’s a loser — akin to gambling — instead of stocks, which not only rely on underlying earnings to determine their price but reward shareholders with dividends, buybacks and other benefits.

Far from saying there are simply some scams within crypto that need to be rooted out — the common refrain of crypto executives — they argue the entire operation is built on sand.

“Investing in crypto is just like what investing in [Bernie] Madoff’s fund in the 1990s would have been — if he had openly admitted, since the beginning, that there was no portfolio, no stock or options trading, not even a small cash reserve,” says the pinned tweet of Jorge Stolfi, a Brazil-based computer science professor, referring to the man who ran the largest Ponzi scheme in history.

Stolfi, a signatory of Wednesday’s letter, is among the most pointed of the crypto catastrophists. Stolfi did not reply to a request from The Washington Post seeking comment. But shortly after the letter went out, he began promoting it, retweeting the messages of a London software engineer named Stephen Diehl. Diehl has become a social media star among the catastrophist set, drawing some 60,000 followers with his own crypto-warnings. (After the letter went out he posted that “Crypto fraud is spiraling out of control” and “regulators are paralyzed and people are getting hurt left and right.” He said it fell to “us as citizens and responsible engineers to help fix the problem we created.”)

Stolfi’s tweet last month asking computer scientists to call out the “dysfunctional payment system” and “technological fraud” around crypto kick-started the letter, which was organized among the signatories with the input of the liberal nonprofit Americans for Financial Reform, an umbrella group advocating for more banking regulation.

Especially noteworthy has been the 2008 crisis prophets, who collectively…



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