The Current - Fartcoin? Bitcoin? Why young people are betting big on crypto

Episode Date: December 18, 2024

Younger people are turning to cryptocurrency because they feel left behind by the traditional economy, say some experts. We break down how it all works — from bitcoin to fartcoin — and look at why crypto has surged since Donald Trump won the U.S. election.

In 2017, it felt like drugs were everywhere in the news, so I started a podcast called On Drugs. We covered a lot of ground over two seasons, but there are still so many more stories to tell. I'm Jeff Turner, and I'm back with Season 3 of On Drugs. And this time, it's going to get personal. I don't know who Sober Jeff is. I don't even know if I like that guy.

On Drugs is available now wherever you get your podcasts. This is a CBC Podcast. Hello, I'm Matt Galloway, and this is The Current Podcast. How desperate do you have to be? Imagine if your success story was, I made it off a fart coin. If that's going to be in your biography, that's crazy. That's crazy work. Well, not that crazy to everyone. Ten years ago, I would have never expected to say those words, but fart coin looks like an interesting trade.

To be honest, I never thought I'd be saying these words on air either. Fart coin is something known as a meme coin, a type of cryptocurrency that has blown up in the past few months. Its value now sits at over 1.2 billion Canadian dollars. Cryptocurrency has been on an upward trend since the U.S. election. U.S. President-elect Donald Trump is promising to make the United States the crypto capital of the world and to, in his words, do something great with crypto. Bitcoin hit another all-time record high yesterday after passing the $100,000 US milestone two weeks ago. To explain all of this, meme coins and the crypto wave, I'm joined by Claire Brunel. She is the future finance reporter at The Logic covering digital currencies. Claire, good morning.

Good morning. Let's walk through the basics here. What are meme coins? Sure. Well, first of all, what is a cryptocurrency? It's something that lets you, for the first time, transfer a fully digital object from person to person, prove that you own it, prove that when you're sending it, you're not sending the same thing twice to two different people. And that's all without the involvement of the financial system or the government in any way. So this, in my opinion, is actually a genuinely incredible innovation. What makes a meme coin a meme coin is that it takes that incredible innovation and just distills it to pure silliness. So these are digital objects that don't have any value except the meme and the marketing attached to it. So, you know, saying things like this is, this is fart coin. We think it's valuable because farts are funny. And then, you know, we're going to make a market for it and see how many people can trade up the value in the game is to sort of take your money out before the whole thing inevitably collapses. That's what makes a meme coin a meme coin. It has no value.

There's, I mean, you know, some of the people in these projects will argue, you know, they'll say things like, you know, Iggy Azalea recently launched a meme coin called Mother. And she said, oh, eventually I'm going to launch an online casino. And these are going to be sort of like the casino chips you use for the casino. Like sometimes they try and make an argument that eventually it'll have a value. But what distinguishes a meme coin, you know, from other crypto tokens is that we all pretty much agree that it's mostly just a big joke. Who's buying them? People who like to gamble.

People who maybe have made a lot of money in other cryptocurrencies and feel like they have money to burn and want to see how much they can make it go up even more by taking speculation to the highest possible level. People who want a lottery ticket, people who feel like the traditional value investing has failed them and they're not going to make it to retirement the normal way. So you might as well try to buy a lottery ticket. That's who's buying them. I guess I'm still trying to understand how a meme coin like fart coin would reach a value of over a billion dollars. Yeah, well, I mean, if you're familiar with how a Ponzi scheme works, that is essentially how is that everybody keeps convincing more people to put in money. You know, everybody says, you know, look how much this investment is going up, like put in more money and you can get it out too. And, you know, it works for a while, right? People are putting in their money, you know, demand causes the price to go up. It's just that eventually, you know, you're going to run out of people to keep putting their money and people are going to want to take their money out and the whole thing collapses. And you need to be one of the people that gets your money out before the thing drops to its value drops to nothing. That is the game, essentially, trying to, you know,

time the market or time, you know, time the whole thing before it collapses. This is I mean, the rise of this and the popularity of this is coming at the same time or a similar time as the value of Bitcoin is skyrocketing. How significant to you is it that Bitcoin is over that $100,000 US market? Yeah, I mean, it's very significant. You know, it's a huge, I, you know, started covering digital assets for the logic in 2021. And yeah, back then the idea of it being $100,000 of, you know, the US talking about making it a reserve currency, like those are things that, you know, even the crypto capital of the world, but also talking about creating that Bitcoin strategic reserve like the oil reserves. Yeah, I mean, you know, in the US, especially under sort of a cloud of whether they're allowed or not.

The, you know, the previous SEC chair, Gary Gensler, was on, you know, a big crackdown mission against crypto. So if they have somebody who's not only friendly to it, but talking about, you know, adding it to the reserve, that's a huge boost. I said in the introduction that you cover the future of finance. Is this the future of finance? Well, it's funny, like, this is it's such an interesting topic. Because, you know, people will say, is this the future of finance or a big scam? And my answer to both questions is yes. Sorry, it's both things at the same time.

You know, it really is. It's a genuine technological innovation. It's a genuine, you know, it is fascinating. There are things that, you know, like we can now, it's not just this transfer of value. People have now, you know, taken that steps further and created banks that execute fully automatically on blockchains without, you know, middleman or the financial system involved, you know, lending protocols, exchanges, like it really is truly amazing. But along with that comes this sort of like silly speculation game that ends up being very harmful to a lot of people. And yeah, there's really that duality to this whole topic that I find fascinating, but also frustrating. Who do you think it appeals to? I mean, what's going on right now? Who is not buying into this, but who is the receptive audience

for this, do you think? I think the receptive audience is people who feel burned and cheated by the status quo. And I think that's, you know, that's why there's a crossover, I think, between Trump voters and crypto fans in a lot of sense, is that if, you know, someone's coming in saying, you know, I see that the system has cheated you. And I have a new way to do it that doesn't involve, you know, any of the old guard at all. You know, here's a here's a totally different way that we can, you know, get away from the whole, you know, swamp of Wall Street in Ottawa, you know, Ottawa and Canada and Washington in the US. That's appealing to a lot of people who feel like they can't get ahead. I mean, it's not just Donald Trump.

The city of Vancouver passed this motion last week to explore making the city Bitcoin friendly. And there would be a Bitcoin reserve there. It could be accepted as payment as well. How significant is that? Yeah, I mean, it's, you know, obviously not quite as big as the U.S. talking about making it part of their reserve currency. But it's still huge. When I saw in, you know february 2021 i started uh being the auto uh the logics crypto reporter full-time and even you know tesla putting bitcoin its balance sheet was a huge controversy big news you know it was you know the idea that we would

then have countries who are making a legal tender and talking about putting in the reserves like that's a big big shift and pierre polyev has talked about this as well. This is a video that circulated a while back of him talking. He bought a shawarma with Bitcoin. Yes. And I mean, faced criticism when the value of Bitcoin dropped. But what does that tell you? Yeah. Oh, yeah.

He faced the liberals slammed him about that for ages because he said Canadians could opt out of inflation by buying Bitcoin. And then the value of Bitcoin immediately cratered and inflation kept going up. But yeah, I think it tells you, you know, it's becoming more and more mainstream. Every cycle, it becomes because we have these boom and bust cycles of it. And every cycle, it becomes, you know, a little more embraced by, you know, politicians by the financial system, a little more entrenched in sort of the real world. And so this is just finally, this is a moment, do you think when we start to see a more mainstream adoption of cryptocurrency? Yeah, certainly acceptance by mainstream. I think another huge thing that happened this year is the

US launched Bitcoin ETFs exchange for your bunch with basically lets you you don't have to open a crypto wallet, you don't have to open a crypto wallet, you don't have to open an account on crypto exchange, you can just use your traditional brokerage account to buy a claim on Bitcoin, you can put it in your retirement account. And that has proven wildly, wildly popular. And that means that, you know, Wall Street institutions like BlackRock, Fidelity, Franklin Templeton now, you know, own, they actually collectively own more Bitcoin than Satoshi, the creator of Bitcoin at this point. Claire, thank you very much for this.

Thanks for having me. Claire Brunel is a reporter at The Logic. She covers digital currencies and the future of finance. In 2017, it felt like drugs were everywhere in the news. So I started a podcast called On Drugs. We covered a lot of ground over two seasons, but there are still so many more stories to tell. I'm Jeff Turner, and I'm back with season three of On Drugs. And this time it's going to get personal. I don't know who Sober Jeff is.

I don't even know if I like that guy. On Drugs is available now wherever you get your podcasts. Omid Malikhan is an adjunct professor of blockchain and crypto at Columbia Business School. He's worked in the crypto industry and is the author of several books on this subject. Omid, good morning to you. Good morning. How do you understand what's going on with, I mean, we could start with the fart coin and the fact that this thing is valued over $1.2 billion. What is going on here? I think Claire actually did a great job of describing the phenomenon.

But I want to add one thing, which is that while the Ponzi scheme analogy is apt and mechanically correct in that the whole thing is sort of a house of cards. And eventually when the music stops, most people will lose money. The difference between a meme coin and a Ponzi scheme is that there is no deception here. With a Ponzi scheme, there's somebody pretending to do something useful and serious and productive, like investing the money. And then later it's revealed that they were actually lying and taking money from new investors and giving it to old investors. Meme coins don't have that. Everybody is aware of. Everyone's in on the joke. Everyone's in on the joke. So despite being gambling risky and something I strongly discourage everyone to stay away from,

I think we should acknowledge that they're at least intellectually honest. So then the question is, what are they a joke on? And I think in some ways they're a joke on the entire financial system because as you and your listeners know, finance on Wall Street is full of people who take themselves very seriously. And they pretend to be doing very, very important work, which as a business school professor, I must acknowledge they do. It's very important to have lending and trading and capital raising. But finance is also a profession that periodically blows itself up, needs massive bailouts. The retail people end up holding the bag, while the affluent and the executives of these institutions somehow always make it out fine. So to me, meme coins are almost a political form of protest against us taking the rest of the financial system too

seriously. I mean, you could see that as well in how you've described the crypto boom. You've said that if you want to understand the crypto boom, think of it as a form of intergenerational revenge in some ways. What does that mean? That means that what's happened in many developing countries in the last, say, 15, 20 years, going back to the 2008 financial crisis, is that the basic dream of the average young American or Canadian, which is to get a good education, get a job, be good at it, work your way up into the uncomfortable middle class, upper middle class life of own your own home, have a retirement portfolio, don't have too much debt. That dream has increasingly become out of reach. And a lot of it actually has to do with various government policies. But nevertheless, the average age of a homeowner in many countries is a lot older than it used to be. Young people just can't afford to buy a home anymore because

house prices have gone up a lot faster than incomes have gone up. Here in the US, we have this student debt crisis that a lot of students who graduate have so much debt because college has become so expensive that it's unlikely that they're going to make enough money from their job to pay it down anytime soon. So what does crypto offer those people? Well, the other element of this is that, you know, why is it that houses are so much more expensive? Even stocks, right? Like if you're a young person and you want to invest in a up and coming AI or or graphics card company, the price has gone up so much in the last 10 years and you didn't own any. Your parents and your grandparents, they owned it and they benefited. So crypto represents a way for young people to also participate in upside and appreciation, but notably in something that's new, something that the previous generation hasn't sort of rigged in its favor via various laws and policies, something that's very jargony and complicated. So grandpa is likely not going to be investing in Bitcoin.

Now, whether that works out or not, obviously, depends on when you measure it. So right now, cryptocurrency prices like Bitcoin have been doing very well. People who invested in them are ahead of the game. A couple of years ago, the opposite was true. But I think you can apply this to even what we saw with the meme stock craze a couple of years ago during the pandemic, which is that young people increasingly feel like they need to find their own way of creating generational wealth. And the fact that it scares the old guardians of the economy, in some ways, that's the point.

That's the point, yeah. You know, sort of like even with meme coins, the fact that, and as somebody who is a member of the older generation, I hate having to even say this, but the fact that SparkCoin has been the thing that has been doing well. And whoever invested in it a couple of weeks ago has for now made a lot of money is part of the appeal. Let me ask you, we're almost out of time, but I want to ask you two things. One is just about, I mean, Trump is coming in and has said that he wants to make Bitcoin a larger part of the US economy in some ways. Where does that leave regulation of this? If there's so much money that's sloshing around, where does that leave regulation of this if there's so much money that's sloshing around where does that leave regulation we are going to need new regulation which should ideally come from new legislation uh and a substantial portion of the crypto industry at least the more uh professional responsible participants have been calling for this the

whole time the problem is under the Biden administration, the position from Washington was either we're going to regulate crypto with laws that were written 100 years ago, or it just shouldn't exist. And so the answer now will be to do what? now will be to do what? The answer now is to actually create new rules that respect what is good and benefiting about this technology. And there's a lot to like and celebrate about it, but also clamp down on some of the more embarrassing shenanigans that go down. And that's not necessarily a meme coin. People want to gamble with their money, and actually gambling is increasingly legal in the US. But it should be around the more serious things like these dollar stable coins, how we regulate cryptocurrency exchanges like Coinbase,

and so on. It says something, just finally, it says something culturally about where we're at right now that people would turn to this, right? Absolutely. And I think the younger people, while I might disagree with some of their reckless behavior, certainly have a legitimate gripe with the economy that the rest of us have created for them. Which is why they're turning to that risky behavior. Exactly. Omid, thank you very much for this. Thanks for having me. Omid Malekan is an adjunct professor of blockchain and crypto at Columbia Business School and the author of most recently, Re-Architecting Trust, The Curse of History and the Crypto Cure for Money, Markets and Platforms.

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