Financial Nihilism Strengthens Crypto

Every few months, cryptocurrency cycles through yet another bout of financial nihilism. Tokens surge and collapse. New forms of leverage spawn like digital fungi. Degens perform their rituals of glorious self-immolation.

Critics claim the entire ecosystem is a casino built on delusion and fraud. Insiders shrug and continue experimenting, as though volatility were simply the price of admission. It’s tempting to see this as a pathology unique to cryptocurrency. But financial nihilism is not new.

In fact, financial nihilism is arguably the default state of frontier monetary systems. Even the early monetary system of the United States went through periods of speculation, fraud, and chaos. And rather than destroying the system, these periods strengthened it. They revealed what would fail, what would work, and what people could trust.

In its financial nihilism, cryptocurrency is not an anomaly. It has evolved faster than ever before. But it’s still just the latest reenactment of an old economic ritual.

The Continental Dollar

During the Revolutionary War, the Continental Congress issued a paper currency, the Continental Dollar. It was essentially an experiment in blind faith. The notes were unbacked by anything other than hope. And they were printed relentlessly to satisfy short term needs, with little planning for long term consequences.

Predictably, there was hyperinflation. Speculators traded the notes anyway, hoping to offload them onto each other for marginal gains. Eventually confidence evaporated. And the phrase “not worth a Continental” became a common insult.

Independent Banking

After independence, the United States Government defined the United States Dollar as a specific weight of silver, corresponding to that of Spanish silver dollars – effectively, a hard fork of the global financial network. But the new dollar wasn’t anything more than a legal definition. The actual cash that people used was basically private IOUs in the form of notes issued by random banks, analogous to crypto stablecoins.

To redeem a note for silver, you had to physically travel to the bank. So notes from banks that were far away would trade for less than face value. And scammers would set up banks in the middle of nowhere (“wildcat” banks) so that no one would try to cash out their notes. When people inevitably lost trust in such notes, they would de-peg from the dollar and quickly become worthless – the old west version of a rug pull.

The Greenback

During the Civil War, the United States Government severed the dollar’s link to precious metals and issued a fiat currency, the Greenback – analogous to an unbacked algorithmic stablecoin issued by the state. But this effectively de-pegged the currency. It began to float freely relative to the value of hard assets. And it became highly volatile, fluctuating wildly based on military performance.

The currency only stabilized years later when the government agreed, once again, to exchange Greenback notes for a specific weight of gold – like an algorithmic stablecoin pivoting to a collateralized model. This move successfully re-pegged the currency. Fluctuations subsided. And note discounts vanished.

Familiar Patterns in Faster Times

Frontier monetary systems exhibit phases of speculation, fraud, and chaos. This isn’t an accident. It’s inevitable. And the degeneracy of financial nihilism is a filter that ultimately separates monetary fantasies from monetary foundations.

The early monetary system of the United States did not rise by avoiding financial nihilism. It rose by surviving.

The dollar took a century to mature. In contrast, cryptocurrency compresses phases of financial nihilism into astonishingly short intervals. What once unfolded over a generation now unfolds in a year. The speed may be disorienting, but the pattern is the same.

Financial nihilism is not evidence of cryptocurrency’s doom. It’s evidence that cryptocurrency is passing through the same filter that all frontier monetary systems, especially the most transformative, have faced. The question is not whether chaos will occur – it already has and will again. The question is which ideas survive that chaos long enough to become infrastructure.

All values are forged, not in calm, but by fire. That’s as true of instrumental values as it is of final values. So it shouldn’t surprise us that money, the ultimate abstraction of instrumental values, must itself be forged by fire.