Data Sheet—Artificial Scarcity of Bitcoin Won’t Justify Its High Price

These are the existential questions of our age. I took the last one directly from a fine cover story in the new issue of Fortune by Jen Wieczner and Robert Hackett. They go deep and long on the most important topic to grip financial markets in a decade. So-called cryptocurrencies have captured the popular imagination despite having no intrinsic value, being opaque to the point of misleading, and demonstrating the kind of price volatility more common to penny stocks on a two-bit exchange.

A nagging concern I have about Bitcoin is the tautological argument used to support it. Bitcoin isn’t like anything else, so it can’t be compared to anything else. You can’t say exactly what it’s good for—surely a currency this volatile isn’t good for stored value—but it’s really good at being itself. Wieczner and Hackett liken this to scientists’ inability in the 18th century to characterize a platypus, which has the characteristics of several animal categories.

Another exciting if concerning thought: The preponderance of experts Wieczner and Hackett quote in their voluminous and detailed report are unknowns working for unknown firms. This is to be expected. A field this new must develop its own authorities.

It’s hard to say where all this is headed. Just because everyone wants to buy something doesn’t make it worthwhile to own. And artificial scarcity—which Bitcoin enjoys—is no justification for sustained high value. Still, where’s there’s smoke there’s generally fire. Too bad too many mindless investors will also get burned.

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The incomparable Ben Thompson of Stratechery posted his year-end round-up of his greatest hits for 2017. (Have you noticed that some athletes sprint through the tape? I feel like I limp to the finish line.) Two of his top five posts for the year had to do with Amazon and one each was about Microsoft, Facebook, and Uber. Sounds about right.

NEWSWORTHY

Battle royale. Chinese ride hailing service Didi Chuxing raised more than $4 billion to fuel an expansion into other countries and aid development of self-driving and electric cars, Bloomberg reports. The investment from SoftBank Group puts Didi's value at $56 billion, second-highest among startups after Uber.

Algorithm meets courtroom. Several prominent tech and telecom companies were sued on Wednesday for age discrimination over targeting job ads on Facebook to people younger than 38. Amazon, T-Mobile, and Cox Communications were among the targets of the suit filed by the Communications Workers of America. Facebook responded that age-targeted job ads are permissible.

Sneaky IPO. Spotify is moving forward with its plan to go public sans Wall Street bankers. The Securities and Exchange Commission is near approval of the music service's plans for a direct listing on the New York Stock Exchange, the Wall Street Journal reports.

Still booming. Spending on digital advertising increased 23% to $40.1 billion in the first half of the year, according to the Interactive Advertising Bureau. Looking at some sub-categories, digital video ad spending increased 36% to $5.2 billion and social media ads jumped 37% to $9.5 billion.

So cool. Secretive startup Magic Leap gave the world a peek at its augmented reality goggles that it says will be available next year. The goggles connect to a hockey puck-shaped computer pack that attaches at the waist and have a small, wireless controller.

FOOD FOR THOUGHT

Passage of the Republican tax bill prompted a few companies to announce that they'd pay workers a $1,000, one-time bonus. But with trillions of dollars on the move, Bloomberg columnist (and former Fortune editor) Joe Nocera is digging into what will happen on a larger scale. And he's cataloged dozens of recent stock buyback announcements linked to the tax bill. When companies buy back their own shares, almost no one except top executives benefit, he argues:

William Lazonick, an economist at the University of Massachusetts-Lowell and perhaps the leading academic critic of stock buybacks, told Forbes not long ago that stock buybacks aren’t about value creation. They are about “value extraction,” the idea that “money in the corporation shouldn’t be there, it should be reallocated by the market.”

In 2014, Lazonick wrote an important article for Harvard Business Review called Profits Without Prosperity, which documented the stock buyback insanity. Between 2003 and 2012, the 449 companies that had been a continuous part of the S&P 500 through that decade bought back an astounding $2.4 trillion worth of their own stock. That amounted to 54 percent of their earnings. With dividends soaking up an additional 37 percent of earnings, there was “very little left for investment in productive capabilities or higher incomes for workers.”

That is what’s really wrong with stock buybacks: They enrich executives at the expense of workers, they widen income inequality, and they hobble the productive capacity of the nation.

IN CASE YOU MISSED IT

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Bitcoin Is Not a Systemic Financial Risk, Say Top Economists By David Z. Morris

NYSE Arca Petitions SEC for Bitcoin ETF Listing By David Z. Morris

Elon Musk Unveils SpaceX's Nearly Complete Falcon Heavy Rocket By Don Reisinger

Trump Team Wanted Michael Flynn to Use This Secret Messaging App By Jeff John Roberts

Apple Could Combine iPhone, iPad, and Mac Apps: Here's How By Don Reisinger

BEFORE YOU GO

You have to give Corey Nachreiner points for creativity. In a piece filled with spoilers from the new Star Wars movie, the chief technology officer of WatchGuard Technologies offers three lessons in cybersecurity drawn from plot points in the movie.