The song for this post is Coke Studio Pakistan’s Ranjish Hi Sahi, which is uncharacteristically bad not just because of Ali Sethi’s wardrobe dysfunction, but because of…auto-tune? What in the world did they do? Ali Sethi is a fine singer, but this is easily one of the worst Coke Studio attempts I’ve ever heard. There are roughly two acceptable versions of this song: the one by Mehdi Hassan and the one by my mom.
Mehdi Hassan is given the appellation Shahanshah-e-ghazal at the beginning of the Coke Studio video. Shah means king, Shah-an-shah means king of kings or emperor and the suffix means “of ghazals”. A ghazal is a particular form of emo Urdu poetry we must all “wah wah” at when someone recites. The title of this post is a calque of that, kind of. Please “wah” as much as you’d like.
My friend, who shall remain nameless, recently posted about PayTM’s IPO. PayTM was one of Google Pay’s main competitors in India when we launched a few years ago. Their stock lost nearly a quarter of its value on the day they went public. The whole thread is interesting, but can be summarized as “a fool and his money are easily parted”. Or more technically: the public stock market is the playground of sharks and graveyard of fools.
Or maybe, value isn’t what we think it is.
The public markets are driven by belief and sentiment - this is no more apparent than in the share price of Elon Musk’s companies. TESLA is yet to deliver the numbers of vehicles that Ford and GM have, yet has a market capitalization several times the incumbents. Though TESLA and SpaceX sound exciting, they are yet to deliver the change they promised. This doesn’t matter, the market believes in them nevertheless. Teslas are notoriously unsafe, but because the public markets don’t care about that, Tesla doesn’t have to either.
I recently hired a PR agency that does a lot of work with startups. Being the naive idiot that I am, I was surprised to find out that there could even be such a thing as a PR agency working with startups. Aren’t startups about the grind and getting shit done and working on the problem, instead of all the big company territorialism and perception management nonsense?
Turns out, no. Startups are as much about image management as any other part of life, it is merely that I deeply disdain the idea of image management and so never bothered to put points into it - as evidenced by my unnecessarily frank and open public Twitter account. At every stage of investment, from seed to IPO, a company is as much a set of beliefs that people have about it as it is a set of assets and capabilities. Belief in the growth of the company is far more important than the growth of the company as everyone tries to find alpha by moving past Bayesian reasoning. In such waters, sentiment about your company is the most valuable asset - if people believe the external press about your company’s growth, then an insider who has spare cash can look out to a sea of fools and see a sea of money.
To be very specific, what I’m describing is several concentric rings of knowledge, with each proceeding ring consisting of larger numbers of more foolish fools. Each ring is a market, the closer your ring to the center, the larger your payoff and arguably, higher your risk.
This is also why we emphasize that startup founders must be passionate. It’s why startup founders are often a mix of delusional and high-energy. They are constantly pumping their company as the next big thing, because that is how it becomes the next big thing. Information slowly leaks out over time to all the different fools and we develop hearsay opinions.
There are of course dynamics that guarantee incredible growth but also doom the scheme no matter how many people buy into it - a pyramid scheme is one. There are also dynamics which gurantee incredible growth but never take off in public markets - a B2B business for example. Many of these businesses remain private and seek funding from investors who understand the space they’re in. I was exposed to quite a few of these in the satellite imaging work I did a few years ago. The sweet spot for the PR-VC-IPO complex seems to be B2C businesses which have significant B2B arms as well. They can advertise that they’re going after big numbers on the business side. This signals that they’re here to stay - Pay TM and Grab being prime examples. They’re household names and going to chase all the little guys and get them onto the platform. This seems to be a long bet, but is different from a pyramid scheme - there is value being created.
Or maybe, value isn’t what we think it is.
What the heck is value?
There are the zero-sum theorists: the ones who say that no value is actually created, it is only transferred. Wealth is taken from one person and given to another and the one who is robbed is disempowered or killed and becomes lost to history.
There are the positive-sum theorists: the ones who say that we actually do generate technologies that improve our livelihood and we are able to live better lives and withstand more of nature’s assaults. We are able to build long-lasting centers of knowledge and labor-saving devices that allow us to do more.
I think they’re both right. There are clearly some massive wealth transfers in the world. The robbery of China’s gold and silver reserves via the opium trade massively benefited the British. Haiti literally had to pay for the freedom of its ancestors after providing massive amounts of commodities to Europe. The wealth of the new American continent whether it was in furs or farmland massively benefited European markets. In fact, there’s good evidence for the idea that it is exposure to American immigration that led to Europe’s rise in standards of living.
The availability of massive amounts of commodities with costs externalized to the colonies is one large factor that led to the rise of European powers in my opinion. Any time you are able to gather together a large amount of something, you can set up research institutes. In this research, you can uncover much more to improve human lives. But also, any time you see a large surplus of wealth, you’ve gotta ask - who is bearing the externalities of this?
The end game of nearly every startup is to become a manipulator of public opinion. To play the game that democracy has unfortunately made possible - that in truly democratic worlds, power lies with the masses and to do things, we must learn to manipulate the masses in order to get what we want done.
What colonialism and early capitalism experimented with, the startup world has refined down to a science and well-documented process and the crypto world has scaled up. Driving all of the current expansion in crypto is the idea that any one can launch their own coin - their own value system around a particular belief codified in protocol, in the stuff of Galloway’s nightmares. The cost - especially environmental - is externalized away and far from your physical control.
Galloway’s Protocol: How Control Exists After Decentralization has one solid lesson to give: when we are presented a vision of the world that promises us untold freedom if only we follow the protocol standard, whether it is UDP, speed bumps or ERC20 we are giving the protocol-makers the keys to our freedom. It seems like a trivial insight, but it shifts the idea of power in our world. Protocol creators might not be accountable to us, they might only be accountable to the general market. Individuals don’t have a recourse, and small groups within a larger sea might get drowned out.
Just as this prusuit of freedom via following the protocols of others can be a red herring, so can the prusuit of value and wealth - look no further than the fact that nearly every crypto currency has its price listed in fiat currencies with few goods available for purchase with pure cryptocurrency.
It mistakes the idea of why people want USD - not because they’re chained to it but because the USD has a lot of value - for individuals who want to pursue a hedonistic and happy lifestyle, but also for groups who want to make sure their instiutions last for hundreds of years. America is valuable and so the USD is valuable. That value was earned in the hearts of people by taking over as naval guarantor of the world from the British Empire. This is a type of belief that is grounded in reality, and unlike the quick myths of the startup or ICO world, it is not something that is easy to perish and when it does will result in massive upheaval.
Arguably, NFTs were created as a way to create an economy around crypto, but this is still a far cry from providing stability and staples. People loved the idea of French luxury goods until the economy went for a downturn, and all of a sudden there was no market for luxuries any more. What persists after something like that? That’s what people want - and that’s what the USD is. Divorced from the geography but not politics of Eurasia.
What frustrates me the most about this is how many brilliant minds have been captured by the crypto craze. It’s painful when one has to but look out at our world and realize the very real broken material all around. I don’t understand how we can divorce ourselves from the real dirt and grime of our world and get lost in the ethereal lands of protocol, sentiment and belief made more mercurial by mass effect.
I hope I’m wrong, that the crypto that we are building up now leads to a research breakthrough that really makes safe streets and good infrastructure in every part of the world. But I don’t think that’s how this ends. I think the market will simply externalize its costs to those who get in last. We’ll just go on, making more markets that lead into each other, markets upon markets up on markets filled with fools who think they know more foolish fools. Marketanmarket-e-fools.