Gold Bitcoin Beanie Baby Bulbs

So, yeah, I’m not the first person to point out the parallels between the recent Bitcoin frenzy and the Dutch tulip mania of the 1630s. Nor, I suspect, am I the first to mention that Bitcoin’s meteoric rise bears shocking resemblance to:

I wasn’t around for the first of those, but I saw the others happen. I even lost a large part of my meager savings in the 1980 gold frenzy. Every one of these events saw people betting their futures on a “sure thing” that “can’t lose.” They were putting their entire life savings into it, borrowing heavily to gamble on a speculative market that seemed like it would just keep going up. And in every case, the bubble burst, wiping out savings in a very short period.

Those bubbles burst because investors flocking to the “can’t lose” scheme drove the prices to levels that were unsustainable. Early investors get in, ride the rise for a while, and then sell to new investors who want the same kind of trip. It becomes a positive feedback loop, until the price becomes too high to attract new investors. One day, somebody wants to get off and discovers that nobody wants to pay what he’s asking for his position. He decides to sell at a loss, at which point everybody else starts to panic and starts unloading as fast as they can, hoping to get out with something.

I don’t know enough about Bitcoin and other crypto currencies to say what, if anything, they’re actually worth, or if the idea of crypto currency has any long-term merit. But the the meteoric increase in Bitcoin prices over the last year, from $750 to $10,000, brings to mind those parallels, and a little bit more research reveals all the signs of a speculative bubble. The number of companies specializing in crypto currency trading has grown tremendously over the past year. There are “network marketing” schemes that pay you for “helping” others get in on the deal. New crypto currencies are popping up. People are borrowing money to invest. People are posting cheerleader messages (“Rah, rah Bitcoin!”) on social media. I’m seeing more hockey stick charts every day. “Look what it’s done in just the last three months!”

There may indeed be some lasting value to Bitcoin and other crypto currencies, just as there was lasting value in Beanie Babies. I saw some at a yard sale last week, going for about 50 cents each.

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