As to the arc of growth and decline in the craft-money business, look no further than the rise and fall of the craft-brewing business. According to Richard Schmidt and Alex Walsh, analysts at Harding Loevner, L.P., the growth of craft beer in the United States over the last decade has been nothing short of extraordinary. In a $100 billion plus industry that had been consolidating for decades, craft breweries rose from a paltry 3.4% market share (by volume) in 2006 to 12.3% in 2016. The surge was so pronounced that, in 2016, a new craft brewery opened in the United States every 11 hours on average. There are now around 5,500 U.S. craft breweries and, though some of their names flout beer-branding convention — Cellar Rats, Evil Twin, Rogue Ales, Dogfish Head, Brew Cult, Hopping Gnome and Wooden Robot are a few examples — they mean business.
And so do the colorful crypto-brands: GameCredits, FunFair, NoLimitCoin and Byteball. Intentions are admirable, but prosperity can throw a curveball. Thus, new craft breweries have cannibalized market share from existing craft brands. “You don’t say you’re a Fat Tire drinker, you say you’re a craft-beer drinker” Schmidt writes. “That’s a problem for Fat Tire. So while market share of the craft-beer category has grown, the share of most individual craft-beer brands has been capped as that growth is shared among a larger pool of competitors.”
Success has presented optical problems as well. There is no such thing as a powerful underdog; the bigger the craft breweries became, the less like upstarts they appear to beer consumers. Boston Beer Co., Inc. (SAM), maker of Sam Adams and, now the second-largest craft brewer in the United States (after D. G. Yuengling & Son, Inc.), has shown year-over-year declines in revenue in five of the past seven quarters.
“While it may not be apparent to the casual beer drinker,” Schmidt and Walsh go on, “many craft-beer brands of the last decade have been acquired by the big beer giants, adding some of the movement’s most recognizable names to their shelves (Ballast Point, Blue Point, and Breckenridge come to mind, and those are just the B’s).”
Probably, the Fed will never buy Bitfinex, which makes the proliferation of craft currencies that much more problematic for the artisanal coin minters. What exactly can cryptocurrency #866 offer that the existing 865 coins don’t already do? If new coins continue to enter the market, might they come at the expense of lower prices for existing coins? Will ICOs that get too big begin to appear like the very establishment that cryptocurrency investors rebel against?
The incumbent issuers of fiat money pose the bigger risk to digital wampum. AB InBev S.A. (parent of Budweiser) is a formidable competitor, but it doesn’t have the A-bomb. Neither does it compile the Federal Register. In July, the Securities and Exchange Commission ruled that ICOs may constitute securities offerings. Presumably this means coin issuers might have to conform to the standards of the securities markets in issuing prospectuses and disseminating audited quarterly reports. On May 25, Sen. Chuck Grassley (R. Iowa) introduced a bill to require travelers crossing the U.S. border to declare their cryptocurrency holdings. The measure enjoys bipartisan support. Canadian securities regulators are similarly preparing to drop the hammer. Most unwelcome for ICO promoters was recent news that the Israeli Securities Authority may take a sterner look at new offerings. Cryptocurrency businesses have favored incorporating in Israel for the very reason that regulation in the Jewish state has been, “light touch.”
In September, China announced a ban on ICOs, fitting a worldwide pattern. The famous speculative proclivities of the Chinese people constitute only one source of support for the home-brew money movement. China’s subsidized electricity costs are another pillar of strength; an estimated 58% of all cryptocurrency mining occurs in the People’s Republic of China. Seeming to anticipate the September announcement of Monday’s regulatory crackdown, ICOINFO, a Chinese platform for ICOs, shut down on Aug. 31— temporarily management said, until the authorities’ intentions became clearer. To take the government’s announcement at face value, ICOINFO might be a long time returning.
One force in the crypto-money movement is the Friedrich Hayek–inspired vision of competitive currencies. Thoughtful bitcoin bulls want to create an alternative to governmental monopoly money, to invent and perfect a monetary system undistorted by state-directed manipulation. What an observant bull is coming to see is that the quantitative easing infected fiat system has turned their imagined monetary Elysium into a speculative pinball game.
The winners will be the sellers.