Bubbles, Cyptocurrency, FOMO, and the People Effect

Cryptocurrency is all the rage of 2017. Bitcoin, Erethium, and ICOs.

What the heck?

You can’t venture on to any personal finance forum or twitter without seeing passionate arguments on either side. New age technology vs. beanie babies and tulip bulbs.  At the time of writing, someone else is calling Bitcoin “the most obvious bubble of our lifetime”.

A recent forum reply to a criticism of Bitcoin as an investment.  Apparently reading a history book doesn’t count

There is probably something to Bitcoin and cryptocurrency, especially as a means to store value for people in unstable countries.  People have been using different means to store value since people developed an intermediary mean of trading.  Civilization has moved from gold as a store of value to currencies backed only by the faith of a central government.  If you’re in Venezuela, what options do you have? The government and government sponsored banking system is corrupt and if you hold physical money armed gangs come and steal it from you.

This series is meant to discuss the human impact of financial bubbles.     Towards the end of each bubble, the average person ends up hurt the most. Fear of missing out becomes a tax on the less sophisticated person.  This can leave a lasting and destructive effect on families, citizens, and countries.

The signs for a Bitcoin/Crypto bubble look a lot like what I’ve seen with Tech/Telecom Stocks in the late 90s, Residential Real Estate in 2006, and Gold/Silver in 2012.   Thanks to the invention of social media, the signs can appear faster.   Here are some common threads:

  • Venomous comments from defenders that end with “you just don’t understand the new world

    Now that’s commitment?
  • Questions or tips from unexpected “investors” – Such as my dental hygienist asking me this week about Bitcoin or a window blind salesmen wanting to talk about how Silver will go to $50/oz in 2012.
  • Justifications for taking concentrated positions (Everyone should have a specific allocation to Technology and Telecom even if they’ve never made money!)
  • Mass advertisement on CNBC or in the financial markets of newly created strategies for the bubble of today (technology specific funds/ETFs in 1999, collateralized mortgage obligations and credit default swaps in 2007 – mainly to smaller banks/funds from large banks, and gold and silver ETFs and safe storage in 2011)

Is Bitcoin and Cryptocurrency a bubble or just new technology that most people don’t understand?  Time will tell.

 

Part 1 – The Concentrated Tech Stock Investment

SEC Releases Statement on Cryptocurrencies

Part 2 – Gold and Silver Ruled 2012!

 

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