Bubbles, in economic terms, are generally fast inflation of prices for a general category of the market, followed by a deflation that is at least as fast as the inflation, if not faster, caused by the realization that the prices achieved are unsustainable. Over the twenty or so years, I can think of the Internet Bubble at the turn of the century, as investors frantically threw money at firms in hopes of hitting it rich, and the real estate investment bubble which terminated in the Great Recession of 2008.
And now I’m wondering if we’re seeing another one in the cryptocurrency market. This suggests that the market can be overly impacted by certain individuals:
Following his May 8 appearance on “Saturday Night Live,” where Musk, who has called himself the “Dogefather,” appeared to disparage the cryptocurrency, Dogecoin tumbled more than 30 percent. Musk followed that performance with another market-moving event, tweeting that his electric-vehicle company Tesla would no longer accept bitcoin as payment, citing its high-energy demands.
Bitcoin, the most valuable digital token, shed about 10 percent, taking many other names along with it. On Sunday, Musk suggested on Twitter that Tesla may have already sold or will sell its bitcoin holdings — sending prices diving. [WaPo]
Add in this bit:
A new cryptocurrency dubbed Internet Computer, which aims to foster open, decentralized versions of social media and enterprise software, debuted to the tune of $90 billion, with its market cap settling near $40 billion on Friday.
And this I interpret as a veiled condemnation:
Angela Walch, a professor at St. Mary’s University School of Law and a research associate at the UCL Center for Blockchain Technologies, said a confluence of factors is behind the flood of amateur investors diving into the market for novel assets.
“Why is this happening now; culturally where are we? We’ve had major world-shaking events, this massive global pandemic, stimulus packages and lots of government spending in the U.S. and elsewhere,” she said. “This is your safe haven, the world is falling apart. Think of it as buying a lottery ticket; spend whatever you would be comfortable spending in Vegas. You may win big. But you also treat it as entertainment value — the chance to win big.”
And what value does cryptocurrency bring to the table? I’ve discussed my misgivings over the years, while admitting I’m not an economics expert.
Nevertheless, I’ll state that this is beginning to feel uncomfortably like a Ponzi scheme – those in early do well, everyone else doesn’t do very well, or ends up holding the bag.
A bag which they bought for a lot of money and found has nothing but a snarky note in it.
