This article is an on-site version of The Lex Newsletter. Sign up here to get the complete newsletter sent straight to your inbox every Wednesday and Friday
Bitcoin may be down about 35 per cent from its November highs. But the popular digital currency — which may or may not be a giant bubble/Ponzi scheme — still has plenty of cheerleaders. Among them is New York City’s new mayor Eric Adams. Since winning office, the 61-year-old Democrat has been talking up the Big Apple as a crypto hotspot.
He has suggested that schools should teach children about cryptocurrency and that the city should have its own digital coin. He has struck up a friendly rivalry with fellow crypto-enthusiast and Miami mayor Francis Suarez. After Suarez said on Twitter that he would receive his next pay cheque in bitcoin, Adams — in a bit of one-upmanship — vowed to take his first three pay cheques that way.
Both Suarez and Adams made their pledge in November, when the token was near its all-time high of $64,500. Adams officially received his first pay cheque on January 21. Since federal labour rules do not allow New York to pay employees in cryptocurrency, the mayor had to use cryptocurrency exchange Coinbase to convert his salary into bitcoin and ethereum. Bitcoin was trading at about $36,500 on the day. Ethereum traded at $2,565, compared with $4,818 in November.
Adams, who makes $258,750 a year, did not say how he divided his salary between the two cryptocurrencies. But assuming a 50/50 split, his biweekly cheque, worth about $5,900 after average tax withholdings, would now be worth $440 more, largely because of a rally in bitcoin.
For Adams, taking his salary in crypto makes for a nice bit of PR showing that for a mayor he is up to speed with the latest financial trends. But it also highlights something about bitcoin. The cryptocurrency may have become more mainstream but it remains as volatile as ever.
Wild price swings suggest that those who publicly opt in are those who can afford to. In an interview with CNN, the New York mayor brushed off questions about potential losses, noting that he was a “long-term investor” in crypto. Presumably he can pay his rent or mortgage in crypto, or he has the luxury of paying for living expenses out of existing savings. I suspect it is the latter.
There is also a disconnect between Adams’ crypto enthusiasm and the wariness of other officials. New York state has one of the strictest regulatory regimes in the country when it comes to virtual currencies. Letitia James, the state attorney-general, has launched a crackdown on the sector and has closed a number of unregistered crypto trading and lending companies. That was after she warned the industry: “Play by the rules or we will shut you down.”
Regulatory disapproval is one reason Wall Street is tiptoeing around cryptocurrencies. Sheer scepticism over use cases is another. JPMorgan Chase boss Jamie Dimon has described bitcoin as “worthless”. He is happy for the bank to deal in cryptos to the extent that regulation allows because they are “adults”. Most banks have fledgling crypto desks largely to provide optionality in the event that the tokens move further into the mainstream.
Adams is therefore something of an outlier within the city’s establishment. He is right to press for New York’s schools to financially educate pupils. But the priority of educators should be to teach children weekly budgeting and percentages, which they may later wrestle with in the form of interest on subprime loans.
New York is an expensive city where income inequality is rife. Prudent governance, progressive taxation and judicious public spending can take the edge off those problems. Investment in volatile cryptocurrencies cannot.
Enjoy the rest of your week.
Pan Kwan Yuk
If you would like to receive regular updates whenever we publish Lex, do add us to your FT Digest, and you will get an instant email alert every time we publish. You can also see every Lex column via the webpage
Unhedged — Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here
FT Asset Management — The inside story on the movers and shakers behind a multitrillion-dollar industry. Sign up here