London: In the past week, Bitcoin took a dramatic tumble after its historic 1,400 per cent rally. The digital currency eventually rebounded only hours later but it left Bitcoin investors reeling with fears that the bubble had finally burst.
While data scientists, software developers and financial engineers are busy at work on more complex algorithmic trading platforms to better predict — and optimise — this volatility, they may be looking in the wrong place. Software code and computer science might provide part of the answers but the rest can be found through a surprising source: the humanities.
Bitcoin, like any currency, is really just an expression of mutual trust in cultural norms and practices. It is a feat of our collective imaginations that we can all agree on our varied currency narratives. I trust that my five goats are going to be worth your five shells, for example. Cyber currency enthusiasts continue to argue that blockchain technology obviates the need for messy and outdated conceits such as trust in institutional banking and trading clearing houses.
And yet, while Bitcoin security may be predicated on mathematics, Bitcoin value is an intrinsically social calculation. Consequently, humanities continue to be our best way of teasing out the nuances in ideas around shared cultural understandings and beliefs. So where can we turn when we want to better understand the radically changing notions of value that exist in this new wave of crypto assets?
The investor Bob Miller, of Miller Value Partners in Baltimore, is betting big on philosophy. He just made a $75m gift to the philosophy department at Johns Hopkins University, believing that a strong humanities faculty will give our society smarter thinkers.
The value investor — famous for his 15-year winning streak beating the Standard & Poor’s 500-stock index — finds great personal value and richness in the discipline. But he also argues that philosophy is the best way of understanding movements in investment involving changing social realities. When our shared understanding of worth undergoes a fundamental structural shift, algorithmic modelling is not going to give us any insights. Only the humanities can help us gain perspective around our changing norms, networks and social institutions.
The idea that the humanities provide some of the essential building blocks to financial and business success strikes us as radical in the midst of a preoccupation with an algorithmic understanding of the world.
Yet it was not so long ago when it was commonplace for leaders in finance, media, or policy to have a background in the humanities. For instance, Ken Chenault, former chief executive of American Express, cited his in-depth study of history as a touchstone for his leadership and managerial acumen; Carly Fiorina, president and chief executive of Hewlett Packard from 1999 to 2005, described her undergraduate major in medieval history as the perfect foundation for understanding the hi-tech world; the investor Carl Icahn’s senior thesis in philosophy at Princeton was titled, The Problem of Formulating an Adequate Explication of the Empiricist Criterion of Meaning; and Steven Schwartzman, chief executive of the private equity firm Blackstone, chose an interdisciplinary major at Yale that he described as “psychology, sociology, anthropology, and biology, which is really sort of the study of the human being”.
It used to be assumed that a better understanding of culture and shared worlds — the cyberpunk world from which Bitcoin emerged, for example — would create better investment and business decisions.
Today we rush far too quickly into an understanding based on aggregation and quantification. And yet when Bitcoin takes its investors on a wild ride, it’s a uniquely human phenomenon. Without tapping into the human sciences, we will never really come close to understanding why it happened and what it all means.
Michele Chang-McGrath is a partner at ReD Associates.