The word ‘millionaire’ is said to have been coined in the early 1700s when many Frenchmen turned nouveaux riches with the ‘Mississippi bubble’. A period of economic boom saw the shares of Mississippi company rising, making many Frenchmen rich and Paris attracting investments, much to the envy of John Blunt, the Director of South Sea Company in London.

Not wanting to lose the opportunities of joint stock companies to build wealth, John convinced the King of England to agree to a scheme, which in today’s terms could be labelled as ‘financial engineering’. The South Sea Company will take over all the government debt (£31 million, England was reeling under debt after its wars) in return to an annual interest and the complete monopoly on all English trade with South America. He will then privatise this debt and sell it as shares of the company with one share being equivalent to £100. Just like most of us did not understand the way financial engineering created new products by slicing and dicing debts and mortgages (that ended up as the 2008 crisis), the King also did not understand this magic of converting debt into a positive product. But John Blunt was at his convincing best. In April 1720, the company started selling its shares.

The narrative of vast wealth in South America, a tinge of patriotism (participating in reducing the country’s debt), and the King and other wealthiest signing up, all was set for exuberance. Many invested and with share price riding high, many cashed out also, driving more people to invest. Prosperity reflected in mansions becoming more grander, sale of luxury jewels, expensive coaches and the likes. At one point, share price reached £1,000. Not surprisingly, the mood gave rise to many more new speculative ventures, which John did not foresee. In the meanwhile, the Mississippi bubble had burst sending some shock waves in England. To avoid the rise of speculation, John managed to get the Parliament to pass the Bubble Act of 1720, which invalidated all joint stocks not authorised by royal charter. As people lost money in those banned joint stock companies, many started selling the South Sea Company shares. John Blunt once again tried to have another subscription scheme, offering Christmas and annual dividends. To cut a long story short, soon people woke up to the reality of a company, which has not yet done any trade, but promising dividends and high share prices. Lost wealth. Suicides. Turmoil. The South Sea bubble had just burst.

From Tulip mania to South Sea bubble to Eugenics to crypto and web3, it is about narratives. Simply put, it is not about the reality or truth. It is just a perceived reality created by well-crafted narratives. It is a combination of narratives driven by incentives on the one side and irrationality on the other side that has charted the course of many a bubble that burst. Not to mention the unenviable contribution of both business and news media with the least accountability. (Eugenics is not an economic bubble, but as a concept, how it caught the imagination of people and resulted in far-reaching social consequences is also about power of narratives.)

All this lengthy prelude to introduce the incredible way in which Molly White tore apart and demolished the State of Crypto Report 2023 by a16z. Having raised more than $7 billion in crypto funds, there is enough incentives for a16z to build and sustain a narrative.

With a graph that abruptly cuts at May 2021, a16z wants us to believe that the only way is up. With an illogical and perhaps downright ridiculous power consumption table, a16z also wants us to believe the power consumption debate of crypto is settled forever. With a comparison that ‘web2 benefits corporations and web3 benefits users/community,’ a16z trumpets the ‘holier-than-thou’ image of big tech. And there are more..

An incisive, must-read report for anyone who has a passing interest in how the world works.

But incentives, incentive seekers, narratives and irrationality will continue to exist as we navigate more cycles. Some will benefit. Many will be collateral damage.