Bitcoin has long faced accusations of squeezing bubbles, although it can hardly protest. Over the past decade, the price has increased several times, but fell again, but usually to a slightly higher level than it was before the pump.
Our old friend Nouriel Roubini considers cryptocurrency to be the “mother and father of all bubbles,” which would be a great achievement for such relative cracking.
Financial bubbles have been around for over 300 years, as illustrated in the Boom and Bust book by William Quinn and David John Turner. By studying the evolution of large bubbles throughout history, he suggests possible causes and methods for predicting (and preventing) future bubbles.
So what’s the bubble?
Some people hate the term “bubble” and think that it is primarily used to describe episodes for which there is no better explanation, or that it is massive dill or irrationality.
Of course, a book that analyzes the causes of the bubbles won’t be very long about “they’re crazy!” This was the correct conclusion. Instead, the authors prefer to simply define a bubble as a sharp rise in the price of an asset followed by a sharp fall.
Some argue that there must also be a disconnect from the underlying asset value, although this definition can make it difficult to identify the “true” bubbles and not use it in the book.
Baby Gori Goose
The book draws an analogy between economic bubbles and fire. If a fire requires oxygen, fuel, and heat to burn a fire, an economical bubble needs three elements in a bubble triangle. These are marketability, money / credit and speculation.
Marketability is an easy way to buy and sell something. This may depend on factors such as legality, separation, portability, and the number of potential buyers.
Money and credit are like the fuel they use for a fire / bubble. Simple lending and low returns on safe assets can turn investors into risky and / or overpriced assets.
Finally, speculation is buying (or selling) an asset in the hope of selling (or redeeming) the asset later to make money.
When these three elements are present, the spark can easily ignite the bubble. The book says that this spark usually comes from technological innovation or government policy.
Boom and bust
The rest of the book examines individual bubbles and applies this model to them. From the South Sea bubble in 1720, the railroad craze, the Wall Street crash, the Internet bubble, to the housing bubble in 2008, and the latest government-created bubbles in China.
They are all scrutinized for market conditions, credit, speculation, and the technical or political sparks that sparked their initial boom.
But since it might be very important to Cointelegraph readers, the cryptocurrency hasn’t been mentioned yet.
To be fair, the last chapter, titled Bubble Prediction, says the authors identified an economic environment that assumed the possibility of another bubble when the book began. The spark of blockchain technology is then described as igniting a cryptocurrency bubble (and it was definitely a bubble by the book’s definition), which sparked speculation and a potential explosion.
However, he quickly gets to the heart of the class – bubble prediction.
Recommend to a friend?
This is a great book for exploring the bubble phenomenon. It is published by Cambridge University Press and is reflected in research, writing, editing and public production. The information is presented clearly in the appropriate language with a clear description.
It does not protect the reader, but is readily available, although some prior knowledge of financial terms will be helpful.
As a general reference for cryptocurrency enthusiasts, it may not be suitable, except for those with a special interest in the science of bubbles … and I’m sure there is more.
Of course it shouldn’t be, so we shouldn’t criticize it.
So instead of criticizing, Cointelegraph asked William Quinn, one of the book’s authors, about his views on cryptocurrencies and bubbles in 2020.
Bitcoin / Crypto Bubble 2017 will not protect the industry from new bubbles, according to Quinn:
“I think that the memory of the bubble is often thought to give investors the vaccine for the next bubble, but this hasn’t been the case lately. More and more soap bubbles appear. ”
One of the surprising elements that the book highlights is the positive impact of bubbles, as they can lead to technological and social change.
While Quinn admits blockchain technology fits within this framework, he personally does not see the real benefits of this technology, saying, “It’s been around for a week.