The Fire Burning Beneath Crypto’s Meltdown
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The Fire Burning Beneath Crypto’s Meltdown

The cryptocurrency implosion followed rampant creation of new digital money, something that never ended well in the traditional world.

By James Mackintosh
Tue, Jun 28, 2022 11:36amGrey Clock 4 min

One of the simplest lessons of stock market history is that innovations often lead to bubbles and busts, from new tulip bulbs through canals and railways to the internet. Less well understood is that financial innovations count for double, as new tools expand the supply of what looks like money, allowing the bubble to grow larger—and the bust to be even more serious.

The cryptocurrency implosion currently underway followed rampant creation of new digital money, something that never ended well in the traditional world either.

The question for crypto enthusiasts is which lesson they should take from history. Are bitcoin and other crypto tokens crashing because of the usual excesses that accompany advances in finance? Or do they have the sort of fundamental flaws that will see them join cowrie shells and Sweden’s 20 kg copper coin as historical relics? I lean toward the latter.

Start with the positive view, such as it is. There was a massive bubble in bitcoin and crypto in general as speculators piled in with the hope of getting rich. It was accentuated by a failure to learn lessons from history, as decentralised finance (defi) reinvented many of the problems of excessive leverage and liquidity mismatches that have bedevilled traditional finance for hundreds of years.

So much, so normal. Pile on too much leverage, use short-term borrowing to finance longer-term lending, and disaster eventually results.

Crypto supporters point to previous “crypto winters” that eventually came good again, and say prices will recover. But this blowout and bust is different, because of defi.

In the booms and busts of the past decade crypto prices were pushed up and fell back down based on the level of interest, rather like Pokémon cards or Beanie Babies.

Defi changed everything, by creating a parallel crypto banking system—without any of the limits or safety nets that have been introduced in the real world in response to past busts. Only now are we starting to find out some of the problems, as brokers and lenders freeze withdrawals, multibillion-dollar “stablecoins” designed to hold a fixed value vanish, and wild leverage leads to widespread forced selling.

At the very minimum this suggests the new crypto winter will be worse than the last few. Defi speeded the bubble’s expansion, and now it is accelerating the deflation.

The irony in all this is that part of the original appeal of crypto was the cap on how many bitcoin can ever exist, something supposed to prevent the sort of unlimited money creation that worries many critics of government-issued, or “fiat,” currencies. Rather than unlimited creation of bitcoin, crypto ended up with unlimited proliferation of new tokens. The new structures of intermediaries and defi tools allowed even bitcoin to be reused or lent on, meaning multiple people thought they owned the same token. Lender Celsius Network is an extreme example: Those who deposited bitcoin and other tokens there were promised high interest rates, but have been unable to get their coins—which Celsius lent out—back.

In the 19th century, the Bank of England discovered that the private spread of bills of exchange could overcome limits on official money-printing set by the backing of gold. Crypto owners are finding something similar, as monetary innovation got round their favourite claim, that the value of their bitcoin was underpinned by its protection from debasement.

The biggest booms and busts in monetary history led to the total destruction of currencies, and that’s already happening to some of the flakier cryptocurrencies.

The hope for crypto is that the speculators who used too much borrowed money are cleared out, the proliferation of tokens is pared back, prices reset lower and the core cryptocurrencies can continue with their grand monetary experiment. Sure, they’re worth less, but survive.

The trouble is that crypto’s problems run deep. Bitcoin started in the hope that it would act as the equivalent of online notes and coins, offering sellers the security of knowing that a transaction couldn’t be reversed, unlike credit and debit cards. It failed to take off as a medium of exchange, as it is clunky and costly to use. Other cryptocurrencies are somewhat more practical for transactions, but all suffer from a core problem: The more they are used, the more expensive transactions become as a way to regulate capacity on the network. Like Uber, Bitcoin has surge pricing built in.

“In a way congestion is a feature, not a bug,” says Hyun Song Shin, economic adviser and head of research at the Bank for International Settlements in Basel. For normal currencies “network effects mean the more the merrier, but crypto achieves exactly the opposite, the more the sorrier.”

The BIS on Tuesday laid out a program for taking the best parts of crypto and using them in digital dollars, pounds or other currencies that could be issued electronically by central banks.

The other trouble with crypto: bitcoin advocates tried to overcome the cryptocurrency’s lack of use as a currency by rebranding it as “digital gold.”

The appeal of gold today is that it acts as a haven in bad times, and typically acts as a partial hedge against inflation. Bitcoin holders have discovered that not only is it not a hedge against inflation, it isn’t a haven either. Its price tends to move in line with risky assets, not safe ones. The gold price is up 4% in the past 12 months as inflation has soared, against a fall of 12% in the S&P 500 and a 43% loss for bitcoin. Digital, sure. Gold, not so much.

None of this means bitcoin or its cousins are definitely doomed. If people keep buying into the story of digital gold despite the evidence, it might thrive. If there’s a new burst of speculative hysteria, its volatility makes it attractive to gamblers. Or its supporters, desperate to find some value in the long strings of numbers they paid so much for, might come up with a new spin to tempt buyers back.

But in the long run, crypto’s best hope of survival is to come up with some useful function in the real world. That will require another round of innovation, and there’s no reason to think it will be the existing cryptocurrencies, let alone bitcoin, that will be the winners.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: June 22, 2022.



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A Killer Golf Swing Is a Hot Job Skill Now

Companies are eager to hire strong players who use hybrid work schedules to schmooze clients on the course

By CALLUM BORCHERS
Fri, Jun 14, 2024 5 min

Standout golfers who aren’t quite PGA Tour material now have somewhere else to play professionally: Corporate America.

People who can smash 300-yard drives and sink birdie putts are sought-after hires in finance, consulting, sales and other industries, recruiters say. In the hybrid work era, the business golf outing is back in a big way.

Executive recruiter Shawn Cole says he gets so many requests to find ace golfers that he records candidates’ handicaps, an index based on average number of strokes over par, in the information packets he submits to clients. Golf alone can’t get you a plum job, he says—but not playing could cost you one.

“I know a guy that literally flies around the world in a private jet loaded with French wine, and he golfs and lands hundred-million-dollar deals,” Cole says.

Tee times and networking sessions have long gone hand-in-golf-glove. Despite criticism that doing business on the course undermines diversity, equity and inclusion efforts—and the fact that golf clubs haven’t always been open to women and minorities —people who mix golf and work say the outings are one of the last reprieves from 30-minute calendar blocks

Stars like Tiger Woods and Michelle Wie West helped expand participation in the sport. Still, just 22% of golfers are nonwhite and 26% are women, according to the National Golf Foundation.

To lure more people, clubs have relaxed rules against mobile-phone use on the course, embracing white-collar professionals who want to entertain clients on the links without disconnecting from the office. It’s no longer taboo to check email from your cart or take a quick call at the halfway turn.

With so much other business conducted virtually, shaking hands on the green and schmoozing over clubhouse beers is now seen as making an extra effort, not slacking off.

Americans played a record 531 million rounds last year. Weekday play has nearly doubled since 2019, with much of the action during business hours , according to research by Stanford University economist Nicholas Bloom .

“It would’ve been scandalous in 2019 to be having multiple meetings a week on the golf course,” Bloom says. “In 2024, if you’re producing results, no one’s going to see anything wrong with it.”

A financial adviser at a major Wall Street bank who competes on the amateur circuit told me he completes 90% of his tasks by 10 a.m. because he manages long-term investment plans that change infrequently. The rest of his workday often involves golfing with clients and prospects. He’s a member of a private club with a multiyear waiting list, and people jump at the chance to join him on a course they normally can’t access.

There is an art to bringing in business this way. He never initiates shoptalk, telling his playing partners the round is about having fun and getting to know each other. They can’t resist asking about investment strategies by the back nine, he says.

Work hard, play hard

Matt Parziale golfed professionally on minor-league tours for several years, but when his dream of making the big time ended, he had to get a regular job. He became a firefighter, like his dad.

A few years later he won one of the biggest amateur tournaments in the country, earning spots in the 2018 Masters and U.S. Open, where he tied for first among non-pros.

The brush with celebrity brought introductions to business types that Parziale, 35 years old, says he wouldn’t have met otherwise. One connection led to a job with a large insurance broker. In 2022 he jumped to Deland, Gibson Insurance Associates in Wellesley, Mass., which recognised his golf game as a tool to help win large accounts.

He rescheduled our interview because he was hosting clients at a private club on Cape Cod, and squeezed me in the next morning, before teeing off with a business group in Newport, R.I.

A short time ago, Parziale couldn’t imagine making a living this way. Now he’s the norm in elite amateur golf circles.

“I look around at the guys at the events I play, and they all have these jobs ,” he says.

His boss, Chief Executive Chip Gibson, says Parziale is good at bringing in business because he puts as much effort into building relationships as honing his game. A golf outing is merely an opportunity to build trust that can eventually lead to a deal, and it’s a misconception that people who golf during work hours don’t work hard, he says.

Barry Allison’s single-digit handicap is an asset in his role as a management consultant at Accenture , where he specialises in travel and hospitality. He splits time between Washington, D.C., and The Villages, Fla., a golf mecca that boasts more than 50 courses.

It can be hard to get to know people in distributed work environments, he says. Go golfing and you’ll learn a lot about someone’s temperament—especially after a bad shot.

“If you see a guy snap a club over his knee, you don’t know what he’s going to snap next,” Allison says.

Special access

On a recent afternoon I was a lunch guest at Brae Burn Country Club, a private enclave outside Boston that was the site of U.S. Golf Association championships won by legends like Walter Hagen and Bobby Jones. I parked in the second lot because the first one was full—on a Wednesday.

My host was Cullen Onstott, managing director of the Onstott Group executive search firm and a former collegiate golfer at Fairfield University. He explained one reason companies prize excellent golfers is they can put well-practiced swings on autopilot and devote most of their attention to chitchat.

It’s hard to talk with potential customers about their needs and interests when you’re hunting for errant shots in the woods. It’s also challenging if you show off.

The first hole at Brae Burn is a 318-yard par 4 that slopes down, enabling big hitters like Onstott to reach the putting green in a single stroke. But to stay close to his playing partners and keep the conversation flowing, he sometimes hits a shorter shot.

Having an “in” at an exclusive club can make you a catch. Bo Burch, an executive recruiter in North Carolina, says clubs in his region tend to attract members according to their business sectors. One might be chock-full of real-estate investors while another has potential buyers of industrial manufacturing equipment.

Burch looks for candidates who are members of clubs that align with his clients’ industries, though he stresses that business acumen comes first when filling positions.

Tami McQueen, a former Division I tennis player and current chief marketing officer at Atlanta investment firm BIP Capital, signed up for private golf lessons this year. She had noticed colleagues were wearing polos with course logos and bringing their clubs to work. She wanted in.

McQueen joined business associates on the golf course for the first time in March at the PGA National Resort in Palm Beach Gardens, Fla. She has lowered her handicap to a respectable 26 and says her new skill lends a professional edge.

“To be able to say, ‘I can play with you and we can have those business meetings on the course’ definitely opens a lot more doors,” she says.

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This stylish family home combines a classic palette and finishes with a flexible floorplan

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Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

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