If The Crypto Crash Is Another “Tulip Bubble” That Is Really Good News.


The Wall Street Journal (“The Crypto Party is over”) Points to the similarities between current price adjustments in cryptocurrency markets and the collapse of many Internet companies in the late 1990s. To be fair, investors at the time were right in their basic thesis: The Internet was really the future. But that didn’t stop many of them from seeing their money get off the train while hundreds of internet businesses went bankrupt.

At the height of this “dot-com bubble,” as I will lazily label it, I was involved in a couple of consulting projects advising technology infrastructure investment banks. I can remember that one of the teams I worked with at the time had a derogatory generic term for pointless point-blank startups that didn’t have a sustainable business model and were created simply to lure retail investors into IPOs while rewarding insiders. They used to call these companies “usedcondoms.com”.

I’m not sure if it’s now politically incorrect to use the term or not (I’m sure social media will let me know fairly quickly) but it still pops into my head almost every day when I read some new cryptographic asset. Carpet scam pull ponzinomic company down the pan and take investors money with it. I will see something about a machine that generates images of chimpanzees with assorted random sunglasses and just file it on usedcondoms.eth and think no more about it.

(I recently found out that used condoms are actually a viable business, by the way. Disposable condoms and seized 300,000 recycled condoms cooked, dried and remodeled with a wooden prosthesis. This means I will need new terminology, so from now on I will follow the more British “usedteabags.com”.)

With Bitcoin
BTC
and ether
ETH
collapsing and a variety of tokens coming to zero and funds exploding everywhere, I think it’s reasonable to wonder how you should be looking at cryptography right now. Are crypto companies a load of usedteabags.com most of which will go to the wall while sowing the seeds of the web3 giants to come, a mimetic echo of the dot bombs? Or should we see the collapse of coins and lots of chips like a modern tulip bubble?

I think it’s the last one, and that’s more important.

Dot pumps

The Dotcom bubble refers to the period from the mid-1990s of the consumer Internet and Netscape IPOs to the Nasdaq peak in March 2000, when a myriad of online businesses were formed with the primary goal of market share and not of benefits. When the rot began and stock prices fell three-quarters over the next two years, many of these companies simply disappeared. But some, like Amazon and eBay, have come to dominate the new business environment.

How is the cryptographic crash? Well, between September 1999 and July 2000, experts in dot com companies they charged $ 43 billion, twice the price they had sold for the previous two years. In fact, in the month before that Nasdaq peak, experts sold more than twenty times more shares than they bought. As Brian McCullogh wrote, ordinary people were the most aggressive investors at the time when smart money was coming out. By 2002, 100 million individual investors had lost $ 5 trillion in the stock market.

The key point is that in the dot-com bubble it was the retail investors who paid the price, just as it is the nurses and taxi drivers who bought tokens to back up the celebrity endorsements that are shattered today, so it’s an interesting comparison. . But what does it mean?

Dots have disappeared but the internet has not. In the next age of web2, as we now call it, companies like Facebook and Alibaba, Twitter and Netflix
NFLX
they were founded and exploded. Hence some observers think that we will see a similar explosion in web companies3 when the cryptographic winter is over and that is certainly not impossible. Although the disappearance of usedteabags.eth and the emergence of amazing new web3 companies will be the biggest impact of the crash?

Listen to the people from the flowers

As you’ll notice, recent online discussions about Bitcoin falling through the $ 30,000 and then $ 20,000 barriers often refer to the well-known speculative mania of Amsterdam’s “tulip bubble” in the 17th century.

Now, there was certainly a kind of bubble in a Netherlands obsessed with exotic products emerging from the East, but it bore no resemblance to the economic cataclysm of the popular imagination. by Peter Garber sight that modern writers who invoke it “take for granted that it was a mania, to select and organize the evidence to emphasize the irrationality of the market” seems right to me.

Yes, traders did get involved in a frantic tulip trade, and they did pay incredibly high prices for some light bulbs. And when several buyers announced that they would renounce their futures contracts, the market fell apart and caused a small crisis. But as I pointed out at Forbes last yearthat was not a mass market mania: it was the speculation of a small group of rich people who could well afford to lose money.

(This does not mean that we should not study and learn about the tulip bubble, and not just about financial services. Anne Goldgar, author of “Tulipmania: money, honor and knowledge in the Dutch Golden Age“Although it was not a financial crisis, it was a social and cultural crisis,” he said. ”.

I think the view that cryptocurrency is a social crisis, not a financial one, deserves more detailed exploration than I can afford. I will look forward to reading what social anthropologists do about it).

The most important, and most relevant today, is that when the bubble burst it left behind a more efficient and better regulated financial market and that financial market then played an important role in creating the Dutch golden age that was founded on trade and trade. So great was the impact of this more efficient financial intermediation that the balances of the Bank of Amsterdam became a pan-European currency, and as noted in an Atlanta Fed article on the subject, the Dutch florin played a role “not very different from that of the US. US dollar today “.

So to say that cryptography is like the bubble of tulips is, in fact, to say that a relatively small number of people will lose a lot of money (things may be worse this time around, because according to a recent survey 56% of American adults). about 145 million people say they own or have previously owned cryptocurrency, and three-quarters of that group, about 107 million Americans, have invested in crypto for the first time in two years), but the long-term result will be a more efficient financial system. . which is pretty much what The Economist meant when he noted that “because tokens can be digital representations of almost anything, they could be efficient solutions to all sorts of financial problems.”

(When I talked to serious financiers about tokens, they all said pretty much the same thing: when the regulatory structure is in place, they will token everything).

If this cryptocurrency crash is really like the tulip bubble, then frankly that’s fine, because the new regulatory environment that will support tokens, digital currencies, and decentralized financing will be the crucial factor in creating a new golden age of commerce and commerce based on new technologies whether Bitcoin goes to zero or $ 100K next year.

(Uh oh. I just found out there actually is 27 things to do with used tea bags, so I’m going to have to go back to the drawing board and look for something else instead. Any suggestions are welcome.)



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