Voices and voices have come back to life in many circles after the crypto collapse. These were the people who earlier used to say that there is nothing in crypto and soon its mass promotion will end. Many consider crypto to be something unique in the long history of financial mania, technically it is. However, the people involved are similar in their thinking and mindset to almost every asset-price mania we have ever seen.
Viewing crypto mania as something unique prevents us from understanding it. If you think about it, you will also feel the same. The dot-com mania was unique because the global networking businesses on which it was based were new.
The global crisis of 2008-10 was unique in that it began with subprime-based financial assets that were relatively new. The railway mania of the 19th century was unique because the rail was new. The famous tulip mania in 17th century Holland was unique, as investing in flowers was a novelty.
Crypto: how much profit, how much truth
A few days back I read an article by Harvard Finance Professor Mihir Desai. There was a very interesting anecdote in this. Its translation would be something like this. During a guest lecture at a military academy when the value of a single bitcoin reached close to $60,000, I was asked what I thought about cryptocurrencies. Instead of voicing my natural skepticism, I got the students to vote. More than half of them had traded in cryptocurrencies by taking loans.
Desai blames crypto-mania on what he calls ‘magical thinking’, which would be interpreted as ‘the belief that good conditions will always prevail regardless of history.’ There is some truth in this argument and it has been said by many people.
Greed or Investment?
This magical thinking on crypto is helped by the tremendous propaganda, according to which crypto is the first government-independent currency in human history. I am skeptical of this explanation for the interest of so many people in investing in crypto. I think this is a case of pure greed, in which the greediness is doubled by the ability to hide huge profits from the tax authorities. Take a look at the people around you who trade crypto. All their interest in crypto evaporated as soon as the huge profits and zero-tax benefits disappeared.
Wave of hope
Would you like to ask yourself an imaginary question? What would have been the level of interest in crypto if its returns had hovered at 6-7 percent per annum? Even if all the principles of its being an independent currency remain firm in their place, no one pays any attention to it. Let’s do one thing that doesn’t get influenced by any propaganda.
People were investing in crypto for the same reason they invested in every bubble from Tulip to Dot Com. That was the reason for the rapid climb up of the graph. This whole thing was just based on hope. Now bitcoin is bullish. Since the beginning of the year, the prices have increased by about 20 percent. This has rekindled hope in the hearts of crypto-freaks.