The Crypto Market Crashed. They’re Still Buying Bitcoin. – The New York Times
Hard-core Bitcoin evangelists are making the case that Bitcoin differs from the unstable crypto projects that sent the market into a tailspin.
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Cory Klippsten started issuing warnings about the cryptocurrency market in March. The digital coin Luna, Mr. Klippsten tweeted, was a scam, run by an entrepreneur with “major Elizabeth Holmes vibes.” The newfangled crypto bank Celsius Network was a “massive blowup risk,” he said.
When those crypto projects collapsed a few weeks later, causing a crash that has wiped out about $1 trillion in value, Mr. Klippsten became a fixture on news shows, where he cast the industry as a morass of hucksters and hypocrites. “Crypto is a scam,” he declared last month.
But Mr. Klippsten differs from most crypto haters in one crucial respect: He runs a Bitcoin company.
In the crypto world, Mr. Klippsten is known as a Bitcoin maximalist, or “maxi” — a hard-core evangelist who believes Bitcoin will transform the financial system even as fraud pervades the rest of the crypto ecosystem. The maxis are just a subset of the crypto industry, but their ranks include influential figures like Jack Dorsey, a founder of Twitter and an early Bitcoin proponent.
The maxis continued buying Bitcoin even after its price plummeted to an 18-month low of roughly $20,000 in June. (Bitcoin is simply “going on sale,” they say.) And, as the market has melted, they have embarked on a public-relations offensive, aiming to persuade investors and lawmakers that Bitcoin is different from the thousands of other digital currencies that proliferated in the last few years before tanking this spring.
“The only future for non-Bitcoin crypto is to seek to be co-opted by banks and governments and become part of the existing system,” Mr. Klippsten, 44, said from his home in Los Angeles, where a decorative Bitcoin sculpture sat on a bookshelf behind him. “Bitcoin actually is outside of the system.”
The debate being fueled by the maxis has become a battle for crypto’s future. The crash demonstrates how closely the industry resembles the worst of the traditional finance system — an interconnected web of risky ventures and casino-like trading practices. The maxis say they are trying to steer crypto back to some of its original ideals at a pivotal moment, as new regulatory scrutiny and mounting consumer distrust pose an existential threat to the industry.
They also see an opportunity to profit from the downturn. As Celsius imploded in June, Mr. Klippsten trumpeted a promotion giving its former customers a membership to his financial services firm, Swan Bitcoin, which provides financial planning for Bitcoin investors.
Bitcoin advocates have been courting new adopters ever since the digital currency was invented, in 2008, by a mysterious figure known only by the pseudonym Satoshi Nakamoto. At the time, Bitcoin backers were disillusioned with the mainstream finance system and wanted to create a form of virtual money that could be exchanged without a bank or another intermediary. With a supply limit built into its underlying code, Bitcoin was supposed to offer a hedge against inflation, since no centralized authority would be able to print more of it.
Many subsequent cryptocurrencies have lacked those features. Often, new coins are issued by a group of founders who exert significant control over distribution — a dynamic that can replicate the centralized structure of traditional finance.
“Bitcoin is decentralized, digitally scarce money. Everything else is centralized,” said Jimmy Song, a crypto podcaster and an outspoken Bitcoin maxi. “There’s a world of difference between a censorship-resistant, self-sovereign money versus a gambling vehicle.”
The maxis’ utopian vision of a stable, decentralized but universally accepted alternate currency is a far cry from reality. Bitcoin’s price swings wildly, and its investors often treat it as a kind of risky stock, no different from the shares of companies traded on the tech-heavy Nasdaq index.
Hardly anyone uses Bitcoin to conduct ordinary transactions. Last year, El Salvador introduced Bitcoin as its national currency, but that project has been a stunning failure. Verifying Bitcoin transactions — a process known as “mining” because it rewards participants with digital coins — is energy-intensive: Researchers estimate that Bitcoin mining may produce as much as 65 megatons of carbon dioxide per year, comparable to the annual emissions of Greece.
“You can’t use it to buy anything — it’s way too volatile and complex and laden with fees,” John Reed Stark, a former Securities and Exchange Commission official, said of Bitcoin. “There’s no intrinsic value.”
Still, the maxis have seized on the downturn to make the case that Bitcoin is the only cryptocurrency worth taking seriously. “Bitcoin Is Down, but Its Case Has Never Been More Compelling,” read a recent headline in Bitcoin Magazine.
“If you call out someone’s risks they’re taking, and they’re otherwise healthy, you can be accused of creating a run on the bank or being a troll,” said Michael Saylor, the chief executive of MicroStrategy, a software company that has built up a large Bitcoin reserve. “It’s kind of hard to explain this theoretically before the crash happens. But now it’s happened.”
In 2020, Mr. Saylor announced that MicroStrategy would begin stockpiling Bitcoin because it had “more long-term appreciation potential than holding cash.” At the end of June, the company had 129,699 Bitcoin, bought for just under $4 billion, according to S.E.C. filings. (With Bitcoin’s recent drop in value, that stash is now worth roughly $1 billion less than what MicroStrategy paid for it.)
At the height of the crash, MicroStrategy spent $10 million on 480 Bitcoin, even as the price per coin dipped to about $20,000. The purchase was the smallest that MicroStrategy had made in more than a year. Mr. Saylor said the size of the purchase was not an indication that he lacked confidence in the currency; it was the most the company could afford, he said, given the cash it had available.
“I always wish we could buy more,” he said. “It’s frustrating.”
Mr. Saylor and other maxis have sometimes complained that Bitcoin is poorly represented in Washington, where lawmakers have expressed growing concern about the cryptocurrency’s environmental impact.
Some crypto advocacy work in Washington is funded by companies that offer virtual currencies built on an alternate verification system, which requires less energy to maintain. In April, Chris Larsen, a billionaire who co-founded the cryptocurrency company Ripple, announced that he was contributing $5 million to a marketing campaign calling on Bitcoin to abandon its energy-guzzling mining infrastructure, which proponents insist is vital to keeping the network secure and equitable.
Now, Bitcoin supporters are building their own political apparatus. This year, David Zell, a Bitcoin advocate, started the Bitcoin Policy Institute, a think tank that pushes a pro-Bitcoin agenda in Washington. The institute has argued that concerns over Bitcoin’s energy consumption are overblown.
“What we’re saying is that Bitcoin has a set of properties that make it unique,” Mr. Zell said. “Those differences are stark enough that if you’re going to have a serious policy conversation around the industry, it’s useful to draw that distinction.”
Mr. Klippsten traces his Bitcoin maximalism to a chance meeting five years ago. (He considers the term “maximalist” to be pejorative and prefers to call himself a Bitcoiner.) A former consultant at McKinsey, Mr. Klippsten became interested in crypto in 2017, when a wave of new currencies were created and prices surged. He bought some Bitcoin, but he also loaded up on newer, experimental tokens.
“I was really distracted by all this other stuff,” he said.
At a conference that October, he met Mr. Song, the Bitcoin podcaster, and was convinced by his pitch. Mr. Klippsten also came to believe that many newer currencies were unregistered securities, more akin to the stocks people trade than to the money used in those transactions. (Regulators have declared Bitcoin a commodity rather than a security.)
In 2019, Mr. Klippsten started Swan Bitcoin, which works with wealthy families, businesses and retail traders to set up Bitcoin investment plans, often through an automatic purchasing program. The firm provides customized financial advice, he said, and charges a 1 percent fee to execute Bitcoin purchases.
The business caters to hard-core Bitcoin believers: Swan customers spent twice as much on Bitcoin in June, the month after the market crash, as they did in April, the month before it, Mr. Klippsten said. He declined to reveal the total figures but said multiple customers made Bitcoin buys of $5 million in June, as the market fell.
Mr. Klippsten automatically invests a portion of his own savings in Bitcoin every day, a process known as dollar cost averaging. He has continued to buy at the same rate throughout the downturn.
But if he received a windfall, Mr. Klippsten said, he would “argue very vociferously with my wife to try to put the majority of it into Bitcoin.”