Housing or Dotcom: Which Bubble Does Cryptocurrency Mania Resemble?
Housing or Dotcom: What Bubble Does Cryptocurrency Mania Resemble?
“It feels as the dotcom bubble all over again, or so the housing bubble all over again”
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That’s Robert Shiller, the Nobel Prize-winning Yale economist, quoted in Fortune magazine cover story on bitcoin.
For one thing, bitcoin and its abundance clones and mutations are , even now, too small and too segregated from the broader financial system to warrant such an intervention.
However, in addition, it is really hard to imagine that not one of those blockchain jobs being showered with cash by venture capitalists as well as increasingly, ICO “contributors” (an unfortunate euphemism) may amount to anything. Those that do can form an important, if intangible, infrastructure for global digital commerce.
A last note: One good thing did possibly come from the last debt bubble albeit indirectly.
Robert Shiller will stay a hero for calling out the U.S. home market’s excesses when it was politically incorrect to do so. But he’s confused for speaking of financial bubbles as if they were interchangeable and equally damaging.
Because this bubble could leave behind the rails of a brand new and enhanced financial system.
Instead of ending “too large to fail” we ended up with the biggest TBTF institutions ever, zombie foreclosures that sat vacant for many years waiting to be repossessed, and the spectacle of Occupy Wall Street stinking up a public playground and scaring the kids.
But there likely won’t be bailouts.
Debt bubbles, like the one that amuses the U.S. housing economy from the 2000s and finally sparked a worldwide financial crisis, leave behind encumbrances. Tech bubbles, like the 1990s internet mania, leave behind infrastructure.
Further, if a person makes a dumb bet on a cryptocurrency that goes south, his losses are limited to the cash he spent. (Hopefully not from his retirement savings)
So while cryptocurrencies are almost certainly in a bubble — I mean, come on, dogecoin’s market capitalization is over $1 billion, and its applications hasn’t been upgraded in two years — the applicable question is that which type of bubble.
And given the threat that decentralized money presents to tax collection and fiscal surveillance, it’s not something most governments would tend to rescue from your abyss.
It is true that, as Lightning Network co-founder Elizabeth Stark lately reported on Twitter, lots of the folks doing significant infrastructural function in bitcoin do so as a labour of love, not to your cash. As the old saying goes, cypherpunks write code.
Possibly in ways we can’t yet imagine. The dictionary as well as the database are examples of applications of pre-internet computing that no one foresaw since they were building computers — transformative technologies that no one might have conceived of before after all the investment in a brand new system was done.
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So crypto bagholders are going to be in their — as it should be. If you do not see why, google “moral hazard”
Marc Hochstein is the managing editor of CoinDesk and also a former editor-in-chief of American Banker.
As with a century earlier, if a boom-bust cycle in the 1880s and 1890s left behind a national railroad network, the dotcom bubble totally transformed the market.
The last great technology bubble, on the other hand, funded the rollout of fiber-optic cable networks and study into 3G cellular computing. (To be fair, tech-stock shenanigans from that age were also a element that contributed to Sarbanes-Oxley.)
If the crisis hadn’t shaken the world’s faith in centralized institutions and fiscal intermediaries, we may not have gotten bitcoin.
In sharp contrast, even when home costs returned to ground, the suckers who’d removed subprime mortgages nevertheless had high-income debts hanging above their heads. Even after the borrowers sent the house keys to their lenders the foreclosures left a stain in their own credit reports for many years until they could receive their financial lives again.
The last great debt bubble gave us $700 trillion of bailouts and more than 2,000 pages of laws (not counting on the reams of regulations placing the Dodd-Frank Act into practice) in the U.S. alone.
Therefore: dotcom or home? Pick professor. Because there’s a significant difference.
Not to mention there’s the internet itself, whose humble beginnings were in Cold War military commanders’ requirement for a resilient communication network in case of a nuclear attack.
And it’s difficult to imagine many of the frivolous preliminary coin offerings (ICOs) out there departing a great deal of heritage, apart from souvenir white newspapers (our age’s version of those classic stock certificates you can buy for a couple bucks from Wall Street sidewalk sellers).
So the possible harm from this bubble is restricted compared to the crash of 2008. And possibly the upside is greater.