Are we in a bubble?
In our last article, we were discussing some of the ideas and simple heuristics people are using to justify entry into the cryptocurrency markets.
I described this concept that as some people start to make money, they tell all their friends about their gains and experiences, and get them to join in as well, lured by the hopes of similar profits. And even if some of the early entries back out of the market, the new influx and wave of people buoy the prices of cryptocurrencies upward.
Now, any of you reading can tell right away that this sounds just like a Ponzi scheme. Infinite growth and no potential risks, right? Until the shit hits the fan and everything dies and everybody’s stored value in cryptocurrency disappears. But maybe that’s not the case.
What I also described was the power of early adopters of this technology being brand champions — in this case the coins and markets being the brand. You see this time and time again with the network effect — social media sites grow because they solve some need or desire of a user, and convince the user to want to talk about it incessantly to all their friends until they join. Okay, maybe not incessantly, but enough to help do some guerrilla promoting on behalf of the entity. All the best platforms don’t even need to pay for advertising because their word-of-mouth advertising works just fine.
When more people use a ride-share platform, more drivers join on so that in theory, wait-times for a new ride drop, making the product even more valuable for the end user. In a social network, the more people on the platform, the more discussion people can have, the more friends they could make ,the more people they can communicate with. And the prices and valuations of such platforms that generate the next wave of users captures the corresponding growth.
That’s not a bubble.
As I say this, there are certainly coins that are valued at incredible amounts, much more than companies and entities with much further progress at a actually solving people’s problems, which is what really matters at the end of the day.
I love bubbles just as much as the next kid. I also like to chase after lots and lots of bubbles, hoping that they reflect and float in the wind before they burst.
With such, a cryptocurrency may be a bubble that continues to float( — heck, maybe it’s a yoga ball?), with more and more people entering to buoy its value. Noted Nobel Laureate Robert Schiller’s recent comments about how bitcoin’s supposed bubble may burst in the next 100 years shows just about all we know about how much we can predict these kinds of things. That’s like saying every company will go bankrupt. Or the sun will stop shining some day. Stars have an incredibly long life-cycle, in which they can either grow to enormous sizes and explode with supernovae, or collapse and form small remnants — even when we can project how long these stars may be able to shine, we have zero understanding of the epochs that may pass. And so for now, we appreciate the sun that shines on our earth, and just go about our days (insert Stellar.org joke here).
When people decide to do more research into the things they’re throwing money at, some projects will stand out above others and survive even the worst days. We’ll talk more about what kinds of characteristics matter when looking at coins and teams here.
