First Bitcoin. Then GameStop. Now Tiny Tungsten Cubes.
Online investors crave the tangible pleasure of holding surprisingly heavy metal blocks.
Online investors crave the tangible pleasure of holding surprisingly heavy metal blocks.
They bought the bitcoin dip. They took GameStop to the moon. Now the online investor army has a new favourite thing to buy and hold: small tungsten cubes.
Even in a year that has featured dog-meme cryptocurrencies and rappers shilling SPACs, tungsten cubes stand out. They are as inert as they sound: gray, an inch or two on each side and 1.7 times as dense as lead. A major selling point, according to Amazon.com’s product page, is that they are “extremely heavy for their size.”
That also is their main source of appeal to crypto bros and other enthusiasts who caused a run on supplies at a major tungsten provider in recent weeks. They are shelling out around $400 apiece for 2-inch cubes weighing around 5 pounds, or $3,000 for the 4-inch version as heavy as a low-horsepower outboard motor—and almost three times the price.
While cube enthusiasts overlap with aficionados of ephemeral varieties of digital money prone to heart-stopping swings in value, their new paperweights, given their density, are among the most-tangible things on earth. Tungsten has one of the highest tensile strengths and melting points among metals.
Drew Morris, a 35-year-old Florida lawyer at a blockchain intelligence company, bought his 1½-inch cube after friends came across it on Twitter and in Telegram group chats. He found the density mind-blowing.
“I keep it on my desk as a reminder of what motivates me—keep going, keep working,” said Mr. Morris, who also invests in cryptocurrencies. “One day, I’ll be able to upgrade to a larger-size cube.”
Cubists like Mr. Morris got recent inspiration from a niche corner of online life: financial Twitter. Fintwit, as it is called, typically consists of investors small and large debating the direction of markets, the prospects for inflation and recipes for grilled meats. Lately, photos of smoked brisket have given away to pictures of cubes.
Nic Carter, founding partner at the blockchain-focused venture-capital firm Castle Island Ventures, describes himself in his twitter bio as the “original tungpiller.” He said the physical heft of the cubes contrasts with the intangible nature of cryptomarkets.
“We’re just deprived of physical totems of our affection, and so tungsten fills that hole in our hearts,” he said.
Demand intensified after Neeraj K. Agrawal, director of communications at Coin Center, a nonprofit cryptocurrency research and advocacy group, posted a joke mock-up of a faked Bloomberg News story claiming crypto traders were behind an imaginary global tungsten shortage.
“I’m gonna be buried with my cube probably,” said Mr. Agrawal. “It will be like a pharaoh buried with his possessions, so the cube will have a place of honor.”
Cube enthusiasts often describe them in quasimystical terms. “You kind of start wondering about gravity and the forces of nature, and it can send you on an out-there-wandering experience,” said Rabbi Michael Caras, an Albany-based Jewish day-school teacher, who uses the twitter handle @thebitcoinrabbi. He owns a 1½-inch cube.
“It’s kind of like a disconnect between what your eyes are seeing and what you’re feeling and what you expect from something that fits in the palm of your hand,” he said.
There is a rallying cry: “We like the cube.” That’s a play on the phrase “We like the stock,” often used on sites such as Reddit’s WallStreetBets to show support for buying shares of GameStop Corp., AMC Entertainment Holdings Inc. or other meme stocks.
The hype sparked a surge in demand at Midwest Tungsten Service Inc., which sells the cubes, along with tungsten in various industrial forms for use in things such as wiring and cutting tools. Midwest Tungsten General Manager Kevin Anetsberger said the $6 billion to $9 billion global tungsten market can support the burgeoning demand for cubes, though the company did need to replenish inventories.
“The universal response whenever we’ve had anybody in our facility, and we’ve handed them tungsten to hold, it’s kind of astonishment,” said Mr. Anetsberger, a 36-year veteran of the company.
While Mr. Anetsberger won’t comment on how much Midwest Tungsten has made from the recent sales, it last week began accepting payments in bitcoin. The first order arrived eight minutes later.
An anonymous group of crypto advocates recently minted 500 digital cubes as nonfungible tokens—unique digital identifiers that have powered this year’s boom in sales of digital collectibles and art, such as NBA Top Shot and the American artist Beeple’s $69 million “Everydays: The First 5,000 Days.” The tungsten NFTs, already sold out, entitle holders to a single real cube of equivalent size. Proceeds go to crypto advocacy groups, including Mr. Agrawal’s Coin Center.
Midwest Tungsten recently launched an NFT of a 14-inch cube weighing almost 1,800 pounds. Buy an NFT and you can visit the cube once a year. On social media, the company requested photos of the cubes in their new homes. “Is it an only-cube?” the firm tweeted.
Daniel Matuszewski, co-founder of cryptocurrency investment firm CMS Holdings, asked Midwest Tungsten to make a 7-inch cube engraved with the company’s name in comic sans. Mr. Matuszewski said the roughly 230-pound cube should arrive sometime around the winter holidays. All in, the company has spent more than $50,000 on branded cubes, he said.
“We have a pretty interesting fight going on internally, whether or not somebody is actually going to be able to pick that up,” Mr. Matuszewski said.
Midwest Tungsten also sells tungsten spheres.
Mr. Morris, the Florida lawyer, isn’t much interested. “We like the cube,” he said.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: October 28, 2021.
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Crypto’s lack of connections with traditional finance means its problems haven’t spilled over to the economy
This year’s crypto collapse has all the hallmarks of a classic banking crisis: runs, fire sales, contagion.
What it doesn’t have are banks.
Check out the bankruptcy filings of crypto platforms Voyager Digital Holdings Inc., Celsius Network LLC and FTX Trading Ltd. and hedge fund Three Arrows Capital, and you won’t find any banks listed among their largest creditors.
While bankruptcy filings aren’t entirely clear, they describe many of the largest creditors as customers or other crypto-related companies. Crypto companies, in other words, operate in a closed loop, deeply interconnected within that loop but with few apparent connections of significance to traditional finance. This explains how an asset class once worth roughly $3 trillion could lose 72% of its value, and prominent intermediaries could go bust, with no discernible spillovers to the financial system.
“Crypto space…is largely circular,” Yale University economist Gary Gorton and University of Michigan law professor Jeffery Zhang write in a forthcoming paper. “Once crypto banks obtain deposits from investors, these firms borrow, lend, and trade with themselves. They do not interact with firms connected to the real economy.”
A few years from now, things might have been different, given the intensifying pressure on regulators and bankers to embrace crypto. The crypto meltdown may have prevented that—and a much wider crisis.
Crypto has long been marketed as an unregulated, anonymous, frictionless, more accessible alternative to traditional banks and currencies. Yet its mushrooming ecosystem looks a lot like the banking system, accepting deposits and making loans. Messrs. Gorton and Zhang write, “Crypto lending platforms recreated banking all over again… if an entity engages in borrowing and lending, it is economically equivalent to a bank even if it’s not labeled as one.”
And just like the banking system, crypto is leveraged and interconnected, and thus vulnerable to debilitating runs and contagion. This year’s crisis began in May when TerraUSD, a purported stablecoin—i.e., a cryptocurrency that aimed to sustain a constant value against the dollar—collapsed as investors lost faith in its backing asset, a token called Luna. Rumours that Celsius had lost money on Terra and Luna led to a run on its deposits and in July Celsius filed for bankruptcy protection.
Three Arrows, a crypto hedge fund that had invested in Luna, had to liquidate. Losses on a loan to Three Arrows and contagion from Celsius forced Voyager into bankruptcy protection.
Meanwhile FTX’s trading affiliate Alameda Research and Voyager had lent to each other, and Alameda and Celsius also had exposure to each other. But it was the linkages between FTX and Alameda that were the two companies’ undoing. Like many platforms, FTX issued its own cryptocurrency, FTT. After this was revealed to be Alameda’s main asset, Binance, another major platform, said it would dump its own FTT holdings, setting off the run that triggered FTX’s collapse.
Genesis Global Capital, another crypto lender, had exposure to both Three Arrows and Alameda. It has suspended withdrawals and sought outside cash in the wake of FTX’s demise. BlockFi, another crypto lender with exposure to FTX and Alameda, is preparing a bankruptcy filing, the Journal has reported.
The density of connections between these players is nicely illustrated with a sprawling diagram in an October report by the Financial Stability Oversight Council, which brings together federal financial regulators.
To historians, this litany of contagion and collapse is reminiscent of the free banking era from 1837 to 1863 when banks issued their own bank notes, fraud proliferated, and runs, suspensions of withdrawals, and panics occurred regularly. Yet while those crises routinely walloped business activity, crypto’s has largely passed the economy by.
Some investors, from unsophisticated individuals to big venture-capital and pension funds, have sustained losses, some life-changing. But these are qualitatively different from the sorts of losses that threaten the solvency of major lending institutions and the broader financial system’s stability.
To be sure, some loan or investment losses by banks can’t be ruled out. Banks also supply crypto companies with custodial and payment services and hold their cash, such as to back stablecoins. Some small banks that cater to crypto companies have been buffeted by large outflows of deposits.
Traditional finance had little incentive to build connections to crypto because, unlike government bonds or mortgages or commercial loans or even derivatives, crypto played no role in the real economy. It’s largely been shunned as a means of payment except where untraceability is paramount, such as money laundering and ransomware. Much-hyped crypto innovations such as stablecoins and DeFi, a sort of automated exchange, mostly facilitate speculation in crypto rather than useful economic activity.
Crypto’s grubby reputation repelled mainstream financiers like Warren Buffett and JPMorgan Chase & Co. Chief Executive Jamie Dimon, and made regulators deeply skittish about bank involvement. In time this was bound to change, not because crypto was becoming useful but because it was generating so much profit for speculators and their supporting ecosystem.
Several banks have made private-equity investments in crypto companies and many including J.P. Morgan are investing in blockchain, the distributed ledger technology underlying cryptocurrencies. A flood of crypto lobbying money was prodding Congress to create a regulatory framework under which crypto, having failed as an alternative to the dollar, could become a riskier, less regulated alternative to equities.
Now, stained by bankruptcy and scandal, cryptocurrency will have to wait longer—perhaps forever—to be fully embraced by traditional banking. An end to banking crises required the replacement of private currencies with a single national dollar, the creation of the Federal Reserve as lender of last resort, deposit insurance and comprehensive regulation.
It isn’t clear, though, that the same recipe should be applied to crypto: Effective regulation would eliminate much of the efficiency and anonymity that explain its appeal. And while the U.S. economy clearly needed a stable banking system and currency, it will do just fine without crypto.
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