The other day I read a piece about the supposed consequences of electing Zohran Mamdani as mayor of New York City, a notion that has gripped the financial press for a few weeks now. I even saw a post from my favorite financial writer, Bill Cohen, that stated that his conversations in the market indicated that Wall Street was far less worried about the U.S. bombing Iran than they were about Mamdani winning the Democratic primary. The difference about this “consequences” piece was that it was on LinkedIn and was from the CEO of a NYSE-listed company. He said his firm had walked away from a $300 million acquisition they had been planning to purchase a portfolio of hotels in NYC. Despite “loving” the opportunity, the election of Mamdani made them suddenly hesitant. Zohran Mamdani, a figure making waves in NYC politics by securing the democratic nomination for mayor has openly declared his democratic socialist positions including public housing and even public grocery stores, all to make NYC more affordable to the regular folks that he feels keep the city running. The sense is that with a probable victory looming for Mamdani, the landscape of the city stands to shift dramatically. His platform advocating for higher taxes, rent freezes, city owned/operated grocery stores, and who knows what else, flies in the face of free market capitalism. The city that never sleeps, the zenith of capitalism, the financial capital of the world could be, he felt, in the hands of a socialist and that it was simply too hard to fathom. He stood astride his obligations for managing capital and declared that the uncertainties posed by such a shift are too daunting to manage. The prospect of increased regulations and/or new taxes under socialist leadership are thought to introduce unprecedented risks that are challenging to quantify. The risks for NYC real estate were simply un-underwriteable. He felt he had no choice but to walk away from the transaction. He felt that every investor and lender in New York is terrified of what’s around the corner if Mr. Mamdani wins. To him, this would freeze New York investments until the election because capital goes where it’s treated best and that if voters go for Mamdani, that will NOT be NYC. He concluded very philosophically that one of the most important lessons he has always tried to instill in his children is a simple one…that the choices we make have consequences, and that a vote for Mamdani could be one of the worst outcomes imaginable for the greatest city in the world. Meanwhile, the brinksmanship of nuclear annihilation going on in the Middle East and the consequences of all of that is what, a totally manageable risk?
The other topic that just happened to hit my screan again at the same time as the skittish NYC real estate investor was about crypto, a subject matter that has been around for more than a decade, but has really gained price traction in the past five years. In that five years, just using Bitcoin as the benchmark, the prices is up almost exactly 10X. That alone is hot so startling when you realize that a hot stock like Nvidia, currently the most valuable company in the world at almost $4 trillion in market cap, has gone up 15X in that five year timeframe. Now, it’s true that Nvidia, with a P/E ratio at 51X is slightly more than twice as valuable as the P/E of the S&P 500 and even the Magnificent Seven (Amazon, Microsoft, Alphabet, Meta, Apple, Tesla and Nvidia) don’t collectively get above a 30 P/E very often. That means that expectations are running way ahead of reality, but that’s what growth stocks are all about and that was the case with every one of those other Magnificent Seven companies when they were young and the newest new thing. But Bitcoin, now trading at $108,000 has an infinite P/E because it generates no underlying revenue. They say that crypto is different. It gets its value from a combination of scarcity (limited supply of 21 million coins), store of value (potential hedge against inflation/currency debasement), medium of exchange (ability to transfer value globally), network effects (growing adoption and acceptance), and decentralization (independence from traditional financial systems). They say its more like a commodity or currency…but most commodities have some purpose…even gold…and fiat currencies (as opposed to digital currencies) derive their value from the financial dynamics of their issuing country. Crypto is based on a concept and at the heart of that concept is a desire for opacity that is contrary to everything responsible governments have tried to establish in the global financial fabric for the past two hundred years. Swiss banking and offshore company registry have been methodically dismantled as secretive means to hide wrongdoing. The same could be done to crypto, but that requires some governance leadership and the Crook-in-Chief of the United States, the leader of the free world, sees fit to promote crypto for no rational reason other than that he can’t get past the money-making opportunity it represents for him and his family.
As we’ve seen the U.S. Dollar drift off by 11% since the start of the second Trump Presidency (the worst six-month performance since 1973), most of that has probably been the result of Trump’s erratic and inane trade policy with a bit attributable to his abuse of fiscal policy as exemplified by the One Big Beautiful Bill and its impact on the ballooning federal deficit. But it may also be that his crypto has had an impact as well. Trump’s Crypto Policies have included an Executive Order to establish a Strategic Bitcoin Reserve and a Digital Assets Stockpile (promoting the growth of U.S. dollar-backed stablecoins) and Trump Media and Technology Group’s announcement that it is selling shares and bonds to raise $2.5 billion to create a “Bitcoin treasury”. This has been good for crypto and decidedly bad for the dollar. Let’s face it, as other things that were seen as safe investments like the dollar potentially become less safe, that could drive more money into cryptocurrency. Furthermore, analysts warn of major dollar depreciation risks tied to rising US debt and other Trump-era policies, potentially boosting crypto as an inflation hedge. The US Dollar Index (DXY) and crypto prices often have an inverse relationship—when one goes up, the other tends to go down. This suggests that as crypto gains legitimacy and adoption through Trump’s policies, it could theoretically pressure the dollar. The impact appears to be more about broader Trump economic policies (tariffs, fiscal spending, trade wars) rather than crypto policy specifically hurting the dollar. The crypto policies may be contributing to alternative store-of-value narratives, but the dollar’s weakness seems primarily driven by concerns about fiscal sustainability, inflation, and trade policy impacts rather than crypto adoption alone. However, I would posit that the world is also seeing crypto as another degree of lawlessness, one that is now being backed by the President of the United States, who is visibly taking advantage of it for his own gain. Now let’s revisit the issue of consequences and what we are teaching our children.
I get the shift in interest away from US and the dollar….Trump has caused the world to worry about the U.S. model. As for the crypto shift, I am confused and still unclear about why anyone thinks that crypto will make the world a better or more prosperous place. I worry that it’s the trend away from a rules and law based society towards a more hyper free-for-all ungoverned society. Republicans are all about states’s rights, so let’s just look at how the states are reacting to crypto where the rubber meets the road for them…their own state treasuries and pension funds. While Connecticut has banned crypto as an investment for state institutions, Texas has followed the Trump suit by setting up a Strategic Bitcoin Reserve…but only for $10 million. To highlight why that is no more than an inexpensive nod to Trump by Governor Abbott, Texas has $382 billion in assets available for investment. The Strategic Bitcoin Reserve e represents 0.003% of the state’s investible assets. And while almost have of the states (all Republican-dominated states) have introduced legislation this year to authorize state investment in digital assets, even Trump’s home state of Florida is charting a very careful path by not yet allowing crypto asset investing, but expressing optimism about doing so in the future. Total public fund investments in crypto are under $1 billion or 0.02% of the $6 trillion invested. You see, there may be consequences for letting governance move toward the left like with Mamdani, but there is as much or more in consequences staring at the reality of letting the public’s retirement funds get spirited away in the latest crypto bubble. The consequences of immorality trump the consequences of socialism to be sure.