Is Bitcoin Trending From a Positive to Normative Economic Thesis?
April 15, 2020, 12:50 a.m.
Take a normative position, make sweeping enemies, only then can you make a difference—I imagined Paul Krugman, dressed as a Jedi, repeating this message.
He’s right after all, the world has changed. Ideologically colorblind statements rarely pierce the veil. Yet there are still truths to divine from differentiating between normative and positive economics, even for pundits like Paul.
Unlike positive economics, which concerns itself with describing things “as they are”—normative economics is a perspective that concerns itself with value judgements of “what ought to be.”
Undoubtedly, both lenses are important. After all, in order to navigate successfully we typically need accurate knowledge of 1) where we are, and 2) where we desire to be. Indeed, this interplay is well-captured in the course of policymaking.
My point of departure here, is simply to ask whether we (the crypto community) are somehow imbalanced in our representation of normative-economic proclamations, compared to positive-economic questions.
And if so, how might this imbalance be affecting us?
A Normative Economic Example
We are the Birth of a New Virtual Nation
We are a Future for Our World and Humanity
We are Sentinels, Universal and Inalienable
We are Creativity and Visionary
We are Rights and Freedoms
We are Tolerant and Accepting
We are Polity and Entity
We are Privacy and Security
We are Openness and Transparency
We are a Dream and a Reality
We are Bitnation
This poetic ending to the Pangea whitepaper by Bitnation, carries with it normative opinions about a world that “ought to be.”
In the paper, its authors describe a future in which individuals can establish borderless “nations,” suggesting that nation-states will “become increasingly irrelevant to our everyday lives,” thereby liberating humankind from “the xenophobia and violence that is nurtured by the Nation State.”
I encountered this project through my friend Ramesh Srinivasan, a professor at UCLA who explores technology’s relationship to economic, political, and cultural life.
In his latest book, Ramesh draws upon the example of Bitnation to introduce the observation that blockchain projects appear to pervasively root themselves in pre-existing ideological convictions. And then goes on to discuss some of the pitfalls associated with this tendency:
“Ideology itself is not inherently a bad thing, but when it drives the development of a technology, the result may look good from some angles and half-baked from others. Bitnation’s shortcomings in this regard are part of a wider trend in which people project their fantasies onto blockchain technology.”
A Positive Economic Example
By contrast, this abstract from the Ampleforth whitepaper (of which I’m an author) is far less poetic — but serves as a straightforward example of what we mean by a positive economic thesis.
Synthetic commodities, such as Bitcoin, have thus far demonstrated low correlation with stocks, currencies, and precious metals. However, today’s synthetics are also highly correlated with each other and with Bitcoin.
The natural question to ask is: can a synthetic commodity have low correlation with both Bitcoin and traditional asset groups?
In this paper, we 1) introduce Ampleforth: a new synthetic commodity and 2) suggest that the Ampleforth protocol, detailed below, will produce a step-function-like volatility fingerprint that is distinct from existing synthetics.
The paper simply:
1. OBSERVES That Bitcoin has been uncorrelated with traditional assets. 2. ASKS Whether it's possible to create an asset that is uncorrelated with both Bitcoin and traditional assets. 3. PROPOSES A testable theory and details a system.
Whenever I tell people that I work in the cryptocurrency space, and they start rolling their eyes, I show them the abstract to the Ampleforth paper.
Like clockwork, the reactions I get afterwards are almost always of surprise, delight, and notably relief. This “turnaround” happens quickly—even in loud, crowded, environments.
It is as if people suddenly go from thinking crypto is full of delusional extremists, to thinking that we’re scientists, engineers, or otherwise “sane” people. Occasionally, they even think I’m onto something.
Things are Looking “Positive” for Bitcoin
This table, tracking the evolution of Bitcoin’s narrative over time, shows the asset trending towards an increasingly positive economic thesis.
Prior to 2017, we saw narratives attaching themselves to the notion of “replacing” sovereign solutions. The implication being that something is catastrophically broken with existing systems of government, and Bitcoin is the solution.
Yet after 2017, we see narratives distancing themselves from concepts of government altogether. Eventually, coalescing into an “uncorrelated asset” thesis which embodies the positive economic description of what Bitcoin is today, without diminishing its potential for global-impact or price appreciation.
But why the directional change? Doesn’t the angriest person always win on the internet? Have we not fully transitioned into a post-truth era?
Perhaps it’s because a great many people now, want to partake in the upside of Bitcoin as an investment asset, but are unwilling to identify with extremist ideologies. After all, normative economic perspectives are seldom agreeable.
Or perhaps the litany of false promises left behind by 2017 evangelists has fatigued the world, irrevocably upping the standard of what the public requires as an explanation for why Bitcoin is a good investment. Natural selection?
Whatever the case, I’m reminded of this tweet by Peter Schiff in which he gloats about Bitcoin’s price dropping near the end of 2019.
My sense is — there’s something interesting going on — when one of crypto’s most vocal antagonists is caught actively reinforcing a narrative that supports Bitcoin, even as he wishes a swift death upon it.
Perhaps that’s the power of positive economics.
Thanks for tuning in — see you space cowboys + girls,
follow me on twitter: @evankuo