It's hard to ignore the bubble-like quality of cryptocurrencies. Now before you dismiss me as a crypto-hater, let me qualify this by saying I agree with Jack Ma (and others) that blockchain technology is indeed impressive with so many potential applications.
Side note: as an example of the bubble-like quality of Bitcoin, I just searched for "jack ma blockchain" and Google responded with pages upon pages of sketchy-looking websites that have clearly been set up in the last 3-6 months to try and capitalize on the mania.
By the way, it's not the most widely followed digital currencies that bother me. It's all the other ones that you've never heard of but to which people are throwing tons of money.
These are the cryptos that remind me of the South Sea Bubble as described in Charles Mackay's classic text Extraordinary Popular Delusions and the Madness of Crowds. People were so enamored by the prospects of newfound riches in the New World that people were ready to invest in anything with even a glimpse of promise, including this:
But the most absurd and preposterous of all, and which shewed, more completely than any other, the utter madness of the people, as one started by an unknown adventurer, entitled, "A company for carrying on an undertaking of great advantage, but nobody to know what it is."
The real challenge is well put by my friend and behavioral finance expert Rick Lehman, who points out that Bitcoin is "neither currency, nor equity, nor collectible, nor tulip."
In the end, Bitcoin is what everyone collectively thinks it is. And it will be worth what everyone decides it is worth at any moment. All of that pent up fear and greed means a petri dish for behavioral finance, as it earns its own chapter in the next big book on bubbles.
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