Jack Dorsey is resigning from Twitter to spend more time with his other company, Square. In some ways, the choice between Twitter and Square is a straight choice between political clout and profit. Square, a payments platform co-founded by Dorsey in 2009, is worth almost three times Twitter’s current value at about $97bn (£73bn). But Square will never be credited with the equivalent of the “Twitter revolution”, or make headlines by banning a former president.
Venture capital is pouring money into cryptocurrencies and payment platforms. Twitter, by contrast, having only started to become profitable since 2018, has always been more notable for its political impact than its commercial pull. However, Twitter, like the wider social industry of which it is a part, may be experiencing the limits of its growth. In terms of commercial reach, Twitter is no competition for industry giants such as Facebook, YouTube, WhatsApp, Instagram and TikTok, which each have well over a billion users. But even Facebook and Instagram are slowing down.
Generation Z is turning off the major platforms. Downloads of Facebook and Instagram have been declining, according to a Bank of America report published in 2019. Both Twitter and Facebook have been losing ground with businesses due to this demographic shift in demand. By capitalising on the rise of video-sharing, TikTok has captured a much younger audience than Facebook or Twitter. Some businesses are also abandoning social media entirely, from fashion house Bottega Veneta, to Tesla, Lush and JD Wetherspoon.
It makes sense that investors are looking for the next big thing from tech, and that social media bosses would be searching for ways to profit from the cryptocurrency bubble. Before he left, Dorsey had been trying to expand Twitter into offering crypto-based payments and non-fungible token services. His replacement as CEO, Parag Agrawal, was tasked with developing Twitter’s crypto strategy, and it seems likely that Twitter will continue to plough that field.
Twitter is not the only social media firm attempting to exploit such opportunities. Facebook’s parent company, Meta, has been trying to launch a cryptocurrency that could be sent worldwide via Facebook products, so far to no avail. This move makes more sense for a platform like Facebook, given that it has always offered a patchwork of services, such as video, photo, fan pages, gaming, buying and selling, and so on, compared with Twitter’s straightforward microblogging service.
However, this isn’t just about profitability. It is about the economic power of belief. Dorsey is also a cryptocurrency fanatic. A particular champion of bitcoin, he claims it will one day “unite a deeply divided country” behind it, and eventually become the world’s “single currency”. Square accepts payments on its cash app from bitcoin, but no other cryptocurrency. Recently, Square released a white paper for a decentralised bitcoin exchange platform that would appear to freeze out competing cryptocurrencies.
Dorsey is also a doom-monger about fiat currencies – those issued by governments. “Hyperinflation,” he oracularly warns, “is going to change everything. It’s happening.” This is baseless. Recent inflationary pressures due to the increased costs of production and transit caused by Covid and extreme weather patterns are real. But there is no hyperinflation in the global economy. Given Dorsey’s profile and potential impact on investors, it could be considered a reckless thing to say; but it also reflects the strange ideology of all bitcoin enthusiasts.
According to its devotees, bitcoin is a deflationary force that routes around the inefficiencies and tyrannies of central banks and fiat currencies. It is deflationary because it is designed to mimic the supply of a real-world commodity, gold. This means that the number of coins that it is possible to mine is restricted: the supply will eventually hit a ceiling with 21m bitcoins. So even though, as the People’s Bank of China recently noted, the digital coin is not backed up by any real value, it operates as its own virtual gold standard. Moreover, bitcoin’s apologists say, decentralised blockchain technology cuts out all middle men, a principle that can be deployed in gaming, finance and social networks. It makes transactions cheaper and faster and keeps efficient records without the oversight of a big state.
The advantage of this “upstart” libertarian ideology is that it chimes directly with the commercial interests of bitcoin investors. Currently, one bitcoin will trade for £42,973. But it wouldn’t be worth a dime if enough investors hadn’t decided to treat it as though it were gold. It is a “hyperstition”: a fiction that makes itself true because enough people believe in it. All currencies rely on what Michel de Certeau called a “secret network” of believers. We all must believe, not only in the value of the currency we exchange, but that others believe in it too. We look to a higher power, typically the central bank, to guarantee this belief. In the case of cryptocurrencies, the tech itself is supposed to eliminate the need for all these elaborate systems. This is typical of the “California ideology”, which blends the values of the libertarian right with the countercultural ethos of some of the internet’s pioneers.
Yet, far from driving any great disruption, the value of cryptocurrencies is mainly a byproduct of developments in fiat currencies. The latter benefited from a glut of spare investment capital caused by the institutionalisation of quantitative easing. The crypto boom since Covid has therefore been made possible by central banks sending money supply through the roof. Ironically, the cryptocurrencies have benefited from precisely the sort of central bank policies that the libertarian right tends to complain about.
Dorsey’s belief in a single global cryptocurrency is not likely to happen. And, as the economist Yanis Varoufakis has pointed out, it would actually be disastrous if bitcoin did replace fiat currencies. The “bitcoin community” would have no incentive to expand the money supply in the event of a crisis. That scenario would benefit the rich holders of the coin, such as tech monopolists, investment bankers and energy oligarchs, while wrecking the lives of everyone else.
Nonetheless, we would be fools to underestimate belief backed up by spare investment capital. Since at least 2017, when a bitcoin was trading at less than $1,000 (£750), there have been a glut of articles explaining why the bitcoin bubble is unsustainable. But, far from falling apart, it continues to surge. Even after Elon Musk dropped the coin earlier this year, and China banned traders from offering bitcoin prices, its tradeable value climbed. The total value of cryptocurrencies today is close to $3tn. With Amazon looking to accept payment in bitcoins, there is space for further growth. Dorsey’s messianic belief in the power of crypto will probably be rewarded with profit for some time, in a way that the hype around Twitter never was.
If we underestimate the economic value of belief, we will underestimate how large the bubble can grow.