The big tech crash: farce in motion, tragedy to come

Every financial collapse reads as farce in retrospect. It was true of the 1630s tulip mania and the 1720s South Sea Bubble. True, too, of the fast-moving Web3 and Web 2.0 collapses, with an added bonus: they can be recognised as farce in real-time.

Strutting emperors from the domain of cryptocurrencies and social media platforms have been stripped of their imperial grandeur to reveal vaudeville villains who, it seems, were hiding in plain sight all along. This is a good thing — and it’s through these towering personalities that journalists are starting to report what’s happening. It’s how we’ll come to understand it.

It’s important to remember, too, that as the collapses leach into the “real” economy — you know, the one where most of us live and work — there’ll be plenty of room for the individual tragedies of lost jobs and diminished savings.

The implosion of the attempts to use cryptocurrencies and non-fungible tokens to financialise the decentralised Web3 — built around its verifiable blockchains and tokens — is the least surprising part of the story. 

As critics are reporting — like Matt Levine in Bloomberg’s “Money Stuff” column — a trawl through the comments of Sam Bankman-Fried, disgraced CEO of cryptocurrency exchange FTX, makes it look like the Ponzi-like characteristics of his company were a feature, not a bug. Surely there was something in the “Bahama-based” tag that should have been a giveaway?

Journalists have struggled to understand and explain cryptocurrencies. It appears, now, that some of that may have been due to the start-up funding FTX was providing. Still, it’s possible there’s something useful in the security that the decentralised verification of the blockchain offers (assuming certain aspects can innovate to prevent planet-destroying levels of carbon-consuming electricity). 

As ever, behind the specific cases seems to have lain good old-fashioned fraud. But one of the lessons we were all supposed to take away from the 2008 financial crisis was not to invest in — or, worse, build our economy around — things we don’t readily understand. 

Now for the good news. Despite all the noise, there’s just not enough money in crypto and NFTs to hurt enough people or nations — other than those, like El Salvador, which saw it as a shortcut to development.

However, it’s not good news in the theatre that is the ongoing tech crash shaking out Web 2.0, aka the social web, where it’s the once-larger-than-life characters — Elon Musk and Mark Zuckerberg — who are putting on the show.

It’s new tech, but it’s an old story: over-spending on cheap (usually borrowed) money crashing into a falling stock market and rising interest rates. Toss in flamboyant billionaires who don’t really understand what they’re investing in but who find irresistible the status offered by ownership of the medium.

We saw an all-Australian production of this movie back in the 1980s when three oligarchs (or would-be oligarchs) overpaid for the three commercial television networks: Frank Lowy at Ten, Christopher Skase at Seven and, most notoriously, Alan Bond at Nine. Within a couple of years, all the networks went broke, leaving old-money Kerry Packer laughing all the way to the bank.

Now, while things are playing out differently for Facebook and Twitter, the market is suggesting the same ending. The stock price over at Zuckerberg’s place has been sliding ever since he announced the Meta rebrand — and has kept heading down as, quarter by quarter, the company has updated its multibillion-dollar spend on the metaverse.

The latest figure is $54 billion, without any indication that what Silicon Valley’s “lean start-up” thinking calls a sell-ready “minimum viable product”. The market reckons the company is now worth less than 30% of what it was before it launched itself into the metaverse. That’s, um, more than half a trillion dollars of lost value.

At least Zuckerberg has a way out of his hole: stop digging. There are still very comfortable returns to be made from the cashflows out of his advertising platforms, even if they lack the adrenalin rush of their once-stellar growth. Shrug, that’s the product life cycle for you.

For Elon Musk over at Twitter, not so much. In taking over Twitter, he’s burnt about the same amount as Zuckerberg’s metaverse play. The market is marking him by proxy — specifically Tesla. An investors’ darling just a year ago, it’s worth half what it was then, in part off the back of the reputational damage of the Twitter acquisition.

Again, he’s got a “stop digging” option — put Twitter into bankruptcy or give it away (or even just stop tweeting). Go back to something simpler (like, as the joke now goes, rocket science). 

But for the billionaire Silicon Valley boys, being stars of the show seems to matter more than the damage they’re doing off-stage.