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The stories that matter on money and politics in the race for the White House

The writer is chief executive of Investment Management Associates and author of several books including Soul in the Game — The Art of a Meaningful Life

Politics in the US has turned into one of our biggest sports. Politics has also turned us tribal — we want to win at any cost. Most importantly, we get so engrossed in the sport that we don’t realise that our future — and the future of our children — is the ball we are playing with.

At the end of July, Donald Trump called for the US to be “crypto capital of the planet” and a “bitcoin superpower”. As part of that, he promised to build a bitcoin strategic reserve. I understand why Trump is doing this; he is a politician and support for cryptocurrency means endorsements from crypto bros.

Who knows whether any policy idea offered as a campaign promise would become a reality if he is re-elected to the White House? But if this one did, it would be dangerous for the US. It is not a game where tribal support should override common sense. Let me explain why.

Bitcoin promotion by the White House would chip away at the status of the dollar at a time when sentiment towards the currency is likely to be tested.

Money is more than just green paper with the faces of dead presidents. There are many ways to define it. One way to look at it is as a claim on a country’s productive power and assets, reflecting the value of a nation’s economic output.

Another way to look at money is as a story. It’s a narrative told through everyday actions such as going to the grocery store and trading dollar bills for milk, eggs and doughnuts. As a society, we believe in the story of the intrinsic value of currency. This mass belief is incredibly important for society’s wellbeing.

A reserve currency is a global story. Many people in many countries, who may or may not have visited the US or done business with it, bought into the story that it was a democracy and that its capitalist, free-market economy made it the strongest in the world. And hey, we were responsible with our finances — our debt was manageable, and though we ran budget deficits, they were not huge.

No longer. Today our $27tn economy has $35tn in debt. We collect $4.4tn in taxes, but we spend $6.3tn — we’re running a 5.6 per cent budget deficit. Already, our finances don’t inspire a lot of confidence in the dollar. As we print more dollars every year to finance our growing budget deficits, the dollar story of an all-mighty reserve currency is losing its lustre.

Anyone who is paying attention is already starting to question the trajectory of our finances as well as the state of our political system. We used to have the undisputed reserve currency because we were great on both an absolute and a relative basis. Today, for some, we are just the best alternative, not because we are so awesome but because we are a less-dirty shirt in the old laundry basket.

This brings us to Trump’s rhetoric about wanting the US to build bitcoin strategic reserves. If he’s elected, this governmental policy would change bitcoin’s story, legitimising it and boosting the case to use it as reserve currency.

Bitcoin is not controlled by anyone, including the US government. We cannot print more of it to finance student or medical debt forgiveness, help out with first-time buyer downpayments, or deliver tax cuts when we are running huge budget deficits. Nor can our politicians print more of it to finance their campaign promises that we as a country cannot afford, just to buy themselves more votes. Yet bitcoin, just like gold, looks shinier with every empty campaign promise and every trillion dollars we add to our debt. What will happen if strangers fall in love with another story that is not green and doesn’t have pictures of the US presidents?

Well, the dollar is very unlikely to be replaced as the dominant reserve currency by an alternative any time soon given its role in trade and the global financial system. But it is being increasingly challenged by both fiat and digital currencies. This is not just a question of the economic fundamentals; other countries are diversifying their reserve holdings of currencies.

In such an environment, the US president and presidential candidates should be the dollar’s biggest salespeople rather than supporting an alternative. The bitcoin story should not be promoted — it should not even be accepted as a form of donation to candidates for the position of US president. Bitcoin is not going to make America great. What will help this country continue to be great is getting our debt and deficits under our control.

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Pavel Durov’s arrest in France for allegedly failing to control criminal content on Telegram, the Russian-born billionaire’s messaging app, has sparked an intense debate about the limits of free speech and the responsibilities of big tech firms to moderate their platforms.

Financially speaking, however, cryptocurrency matters as much to Telegram’s bottom line as messaging.

FT Alphaville got its hands on the privately held company’s 2023 financials, which show crypto transactions providing a big chunk of its revenue.

Telegram Group, which is incorporated in the British Virgin Islands and has one of its main operating subsidiaries in the United Arab Emirates, booked $342.5mn of revenue last year on a hefty operating loss of $108mn. Here’s the PnL statement, signed by Durov and given a clean bill of health by PwC’s Dubai branch in April:

Eagle-eyed readers may have already spotted the “gain on revaluation of digital assets” lines, of which a modest $500,000 was booked through the PnL and a more substantial $86mn through other comprehensive income.

Turning to the breakdown of Telegram’s revenue, the “integrated wallet” and “sale of collectibles” line items will also likely trigger the spidey-sense of any crypto-conscious reader:

Combined, the two line items make up over 40 per cent of Telegram’s revenues.

You may also have noticed that the so-called “integrated wallet” is a new business line for Durov’s company. As the accounts also explain:

During the year ended 31 December 2023, the Group started generating revenues from enabling access to the Integrated wallet (Note 13). The Integrated wallet is a software program that allows users to store, send, receive and trade crypto assets.

Telegram gives further disclosure on what digital assets, collectible sales and its integrated wallet mean for its business, here:

Digital assets

The Group sells different collectibles and provides Integrated wallet services in exchange for non-cash consideration in the form of Toncoins (digital assets) which are accounted for under IAS 38 — Intangible assets.

These digital assets are initially recorded at cost and are subsequently measured under the revaluation model at fair value less any accumulated impairment losses at each reporting date considering the presence of an active market for the Toncoin. Any fair value movements above cost are recorded through other comprehensive income in a separate reserve called ‘Revaluation surplus’ within equity while any fair value movements below cost are first offset against existing credit balances under the revaluation surplus with any excess over and above this balance being recorded through profit or loss.

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The Group holds these digital assets for its own account for investment purposes (that is, capital appreciation) over extended periods of time with subsequent sales made at management’s discretion when the market conditions are favourable. Gains and losses on disposals are determined by comparing the proceeds with the Carrying amount and are recognised in profit or loss for the year when the asset is derecognised. At the time of derecognition, the associated amounts recognised in the Revaluation surplus are transferred to Retained earnings.

And here:

Revenue from the sale of collectibles. The Group sells different collectibles (usernames, virtual phone numbers) to its users. The related revenue is recognised at a point in time when the collectible is assigned to the user. The Group also enables the sale of collectibles between users and receives the fee for facilitating the sale.

Toncoins (digital assets), a non-cash consideration is accepted as consideration for this type of sale. Toncoins are measured and recognised at fair value at the time of the Group fulfilling its performance obligation: assigning the collectible to the user or facilitating the sale between users. The Group determines the fair value of the digital assets based on quoted prices on the active exchanges.

Integrated wallet. The Integrated wallet is a software program that allows users to store, send, receive and trade crypto assets. During the year ended 31 December 2023, the Group recognised revenue from the integration of the Integrated wallet at the time of the provision of the application programming interface to The Open Network Foundation enabling Integrated wallet’s integration into Telegram App, and from providing continuous access of Telegram users to the Integrated wallet from menus inside the Telegram App on an exclusive basis over the term when the service has been provided. The Group normally provides services related to the Integrated wallet on a prepayment basis. There is no financing component, because the services are rendered within a period less than 12 months from payment.

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Toncoins (digital assets), a non-cash consideration is accepted as consideration for this type of sale. Toncoins are measured and recognised at fair value at the time when the Group receives the consideration.

The TON blockchain that underpins Toncoins was originally developed in-house at Telegram, drawing in supporters that included prominent wealthy Russians. It is now developed independently of the company by an open-source community, however, after the project ran into regulatory troubles in the US.

Turning to the balance sheet, digital assets make up a big chunk of Telegram’s assets. Valued at nearly $400mn, tokens are far larger than its cash and cash equivalents:

Telegram further breaks down last year’s increase in its crypto holdings here:

Elsewhere in the related-party transactions section of the accounts (one of FTAV’s favourite sections in any set of financial documents), we learn that aside from purchasing $64mn of Telegram’s convertible bonds last year, Durov also purchased $300,000 worth of Telegram Premium subscriptions for a giveaway, paying the company in Toncoin:

Needless to say, Toncoin traders have not shrugged off the news of Durov’s arrest. Price chart courtesy of CoinMarketCap:

Usefully for Telegram, the events-after-the-reporting-date section of the accounts shows that it sold a big chunk of its Toncoin ahead of the price crash:

While Telegram is 100 per cent owned by Durov, the company has raised north of $2.3bn of convertible bonds from blue-chip investors such as sovereign wealth funds, hedge funds, and tech-focused investors.

Even leaving aside the heavy reliance on crypto and the substantial liabilities, one might question whether a business that had to burn through over $450mn of operating expenses to make $342.5mn of revenue is worth the “$30bn-plus” valuation Durov touted to the FT earlier this year.

When it comes to its founder’s arrest, however, investors in Telegram’s convertible bond that properly read the accounts can’t say they weren’t warned:

Since its founding, the Group has been firmly committed to guaranteeing the privacy of Telegram’s users. The Group’s core value of user privacy has not prevented Telegram from actively engaging in efforts and technical solutions to combat abusive, malicious or violence-inducing content online. The core values of the Group have led to Telegram’s popularity with its users. However, the Group’s operations can be affected by legal and regulatory frameworks in different countries which are subject to frequent changes and varying interpretations.