Cryptocurrencies and Blockchains: the Next Bubbles to Burst?

There is a scene in J.C. Chandor’s 2011 film based on the events of the 2008 financial crisis, “Margin Call,” where the CEO of the fictitious firm John Tuld, played by Jeremy Irons, recites how the current crisis is but another in an endless series of bubbles that have occurred over the past 3 or 4 centuries. “We can’t help ourselves,” he says matter-of-factly.

So it is with this worldview in mind that I read, with both amusement and with a sense that each of us had better get our financial situations squared-away, the breathless explanations, descriptions and sales-pitches for the world-changing innovation that are crytocurrencies and, indirectly, the enabling technology of blockchains.

To be fair, there is nothing inherently bubblish about either. But as they say, once the average Joe on the Street is telling you that you ought to buy Bitcoins or invest in blockchain startups, and they can’t explain what either is, then I think it is time for wiser heads to consider the exit for the time being.

Many consultants and gurus have a vested interest in seeing the hype continue, until it doesn’t.

After this latest bubble builds and then bursts there will be some who will lose a lot of money, just as some lost a lot of money when the dot.com bubble burst. Nasdaq hit a high point on March 10, 2000. By October 2002 it had lost almost 80% of its value.

As before some firms and innovations will survive; Amazon was one of the firms contemporary with the dot.com bubble. But then as now there will be many others that looked and sounded good at the time and yet in hindsight seem either quaint or ludicrous or both.

Remember Pets.com? Webvan.com? eToys.com? GeoCities.com? theGlobe.com? Go.com? Drkoop.com? Kozmo.com? Garden.com? Or perhaps most prescient of all, Flooz.com, that sold an online “currency” that could be used instead of credit cards at retailers such as Tower Records, Barnes & Noble, Outpost.com and Restoration Hardware.

If one plutocrat wants to lose their money to another plutocrat, then who am I to argue. But it’s never that clean. Usually it’s the average Joes that are left holding a paper bag of, according to Tuld in “Margin Call”, “the most odorous excrement ever assembled the history of capitalism.”