I visited Miami after the stock market crash, Crypto Bubble Pop

To succeed on Wall Street, you must be able to recognize the shifting market winds—patterns that inform investors when it’s time to get in and when to get out. Sometimes the wind is a warm and welcoming breeze: Assets rise in value and everyone seems to be making money. Other times, they transform into a violent gale, leaving economic destruction and devastation in their wake.

If any city was on the receiving end of the dramatic weather pattern that gripped the markets in recent years, it was Miami. And if any city is the city ​​where you can see how remarkably things have changed, so is Miami. Consider it an economic weather vane located on the Florida coast.

When I visited Miami in January 2021, the gentle wind of stimulus money and pandemic-era savings had turned the city into the crypto capital and a paradise for a new kind of stock jockey who is too online. But when I returned in January this year, signs of the market’s meteorological reversal were everywhere.

Gone are the near-daily happy hours at the beach bars where crypto guys in Crocs raved about the latest coin. Traffic on Miami Beach’s sexiest thoroughfare, Collins Avenue, is lighter. The home of the NBA’s Miami Heat — hastily renamed “FTX Arena” after the city signed a $135 million deal with the now-collapsed cryptocurrency exchange — has already been renamed “Miami-Dade Arena.” And the gossip around town is that the repo man is coming for recently purchased Mercedes G Wagons – the unofficial status symbol of Miami’s recent money.

Not that the city’s longtime residents are rattled by any of this. Miami has been home to many a frenzy—the land grabs of the 1920s, the cocaine boom of the 80s, and the real estate bust of 2008. Every time there’s a boom, the city is invaded. And every time there’s an inevitable bust, the carpetbaggers manage.

The people who really make it in Miami are a lot like the people who make it in the market: steady, clear-eyed and aware of the possibility of gale-force winds from the Caribbean overnight. And those who hang on after the wind shift leave with far fewer dollars, but a handful of valuable lessons: Past performance is no guarantee of future returns, and sometimes when the sun shines, it burns.

Miami bubble machine

Miami is no stranger to quick injections of wealth. Yes, the city is an international financial hub, but it’s also a free-wheeling haven with a love of fast money in a state with no income tax – classic conditions for forming financial bubbles. Miami Beach itself was born during the land rush of the 1920s, when Carl Fisher built the city from sand dredged out of Biscayne Bay and average Americans began buying up lots in Florida unseen. Author Christopher Knowlton argues in his book “Bubble in the Sun” that while these speculations did not directly cause the Great Depression, “the Sunshine State provided both the dynamite and the detonator.”

If the draw of the 1920s was imaginary land, Miami’s bubble of the 2020s was fueled by imaginary money – crypto. In any case, the idea was the same: buy into the hot investment and become fabulously rich in a short time. When I visited Miami in February 2021, the vaccine rollout was just beginning. Californians and New Yorkers fled to Florida in record numbers to escape the pandemic winter, find riches, or both. Miami, on the other hand, raged like there was no pandemic at all.

The stock market was on a stimulus-driven heater, and the whole town knew someone cashing in on Robinhood. You couldn’t get a seat at Carbone, the extravagant red sauce imported from New York City and famous for serving the stars. Lives up to Miami’s reputation for being big bienvenidos, the city’s mayor, Francis Suarez, set himself up as a one-man welcome wagon for the crypto crowd, the startup crowd, and any financial firm that might want to move into town. As bitcoin soared above $40,000, the city published a “white paper” declaring that crypto would “transform the world,” minted its own digital currency and began attracting the biggest names in digital finance. Crypto was injected into pretty much every Miami function, especially the biggest annual festival, Art Basel. With all the ease of Pitbull donning a pair of aviator sunglasses, Miami absorbed the frenetic energy of an entire country frustrated by the pandemic and flush with cash.

“The pitch was like Miami’s cocaine cowboy days,” said a real estate agent who specializes in selling high-end properties to wealthy newcomers. “Come here, and it will have free rein.” It didn’t feel like the right move, but cash is still king in Miami.”

The real estate agent told me that during this boom they brought a lot of young men in the crypto world to see properties, although they rarely bought anything. They played together as wealthy real estate gurus, the broker said, “trying to be an expert on something they didn’t really understand,” and they were often disinterested in whether a potential deal made financial sense. There was a lack of grounding in their property displays, often highlighted by the unlikely combination of naivety and a new lover at every meeting.

Given the city’s history of riding trends, it wasn’t surprising that crypto and other tech startups based on short-order fads — think: metaverse — found a home in Miami. What was strange was kind of people flocking to Miami for this latest speculative craze.

“If you are not comfortable going out, go out, Miami is a lot to handle,” the realtor told me. “I don’t think any of them are exposed to nightlife. The things you do in your 20s, these guys were doing for the first time.”

At night, the crypto children traveled in obvious packs with men dressed as boys at the camp. And as boys in the camp, their movements were limited to parts of the city built to accommodate visitors playing. It is unclear whether it was for comfort or simply because they did not know where else to go. They had too much money to be spring breakers and too little idea of ​​what to do with it to be locals. They didn’t own white jeans, a staple of the Miami nightlife uniform, and couldn’t tell the difference between a pretty woman flirting and one doing her job. They did, however, tip and use well when instructed, I am told. Miami—ever resilient—may have bent with crowding and been weary with teaching, but it didn’t break.

That is not to say that all of the city’s growth was built on the blockchain. There were several stable players with high finances who also moved. Citadel — Wall Street’s biggest market maker and undisputed champion of the pandemic cycle — moved its headquarters and eventually hundreds of employees there from Chicago. But the realtor told me there were clear differences between those going south with crypto-cash and the more traditional financiers. Unlike the crypto kids, these traditional types showed up to see real estate with a family and a financial plan. It was clear that, like their employees, they were looking for a place to do a long-term deal — or at least a good school district.

Privately, Miami natives laughed as the newcomer signed his warnings about the anxiety of hurricane season and the unbearable summer heat. The newcomers – and especially the crypto kids – thought they could master Miami as easily as they had mastered the markets. Like so many before them, they had chosen the right investment and become fabulously wealthy in a short time. So how hard can it be?

The rhythm is going to get you

In the spring of 2022, this latest round of Miami startups learned the same lesson as speculators throughout the city’s history: It can literal be pretty tough, bro.

After they spent two years riding high, the wind changed and the markets turned with a vengeance. Bitcoin began collapsing in March, going from an all-time high of over $60,000 to $16,200 by November. The Miami coin fell 95% from February to May. Tech stocks big and small were also beaten up. The new money lot in Miami was starting to run out of dribbles.

The moment the music really stopped, however, was when FTX – which had been valued at $32 billion at its peak – collapsed in November and the founder of the wonder, Sam Bankman-Fried, was charged with fraud. It was a gasp that was heard across the crypto world, and other big names in the burgeoning industry – such as Celsius and Gemini – were swept away shortly after. In Miami, the crypto guys started disappearing from the city. A bartender at a members-only beach club in South Beach where the crypto kids tried to hold their own told me it was a pretty quick disappearing act. They’re all gone “because they’re all broke,” they told me. It was that simple.

As one person who successfully jumped from raising money for Wall Street to Miami crypto and then back again frankly told me, “Everyone knew SBF was a scam, but Bernie Madoff kept the joke going for almost 20 years.” The expectation, they said, was that SBF would be better at keeping the shell game going – he wasn’t. Without the man CNBC’s Jim Cramer called “the next JP Morgan,” and with Washington cracking down on the industry, Miami’s crypto kings became scarce — fast.

And as soon as FTX fell, the cold winds of regulation began to push into Miami from Washington, DC. “Shit, regulation means less opportunity,” the former crypto fundraiser said. In interviews, executives like Coinbase CEO Brian Armstrong will tell you that crypto welcomes regulation because it can remove uncertainty and give participants clarity on the rules of the road. But this is more of a ruse: What Armstrong and his like desires are relaxed regulations.

It’s smoke and mirrors. There is no real money here anymore.

That’s why crypto’s current breakdown of faith could be fatal. Regulators clearly believe crypto is too volatile for big banks to handle, which will limit its growth. As it is, the small banks that served the industry – like San Diego’s Silvergate – are failing or, like New York’s Signature Bank, failing for lack of capital as coin prices plummet. Securities and Exchange Commission Chairman Gary Gensler appears to be leaning toward officially labeling crypto as a security, which could kill the industry entirely by revealing that beneath the thin veneer of technological innovation, it’s just plain old gambling. Knowing this, the same people who sipped cocktails in their cargo shorts and called Miami home in 2021 are now threatening to move their emptying empires overseas in 2023 — if they haven’t already left. Gensler seems unfazed.

“There were a lot of true believers in Miami’s crypto scene. They wanted to drink the Kool-Aid,” the fundraiser said. “The big boys like Peter Thiel all came out on top. The poor guys just crumbled to nothing.”

In January, I sat with a former crypto executive at the bar of the Eden Roc hotel in South Beach. Miami was experiencing its normal winter rush of Wall Street conferences, and we read faces. The crypto boss wanted to see if Wall Street’s congregation had figured out what they had figured out months before — that the beach party was over. “It’s smoke and mirrors. There’s no real money here anymore,” said the former crypto boss, a third-generation Wall Streeter. “It’s all gone to Dubai and Singapore.” There was fear on the faces of people where two years ago there had been greed.

“You know who’s rich in Miami?” the former crypto boss—now a naturalized Miami citizen—asked me. “The people who make windows for yachts.”

They are right. The people who survive in the city, whatever the weather, are those who make a living supporting its glamorous lifestyle. They work in nightlife, hospitality, real estate and anything that can provide the infrastructure for party people. Like so many speculators before them, the crypto kids came and went, leaving barely a mark in the sand. Some of the wealth that entered Miami in recent years will remain. But just like in the broader market crash, much of it is gone forever. This is a routine the city has become accustomed to. Nature is healing. After a new stream of money rushed in and out, Miami remains sun-soaked and untidy, but always keeping one eye out for the next shift in the wind.

Linette Lopez is a senior correspondent at Insider.