Why Market Mania Must Happen in Crypto

Today, there is an article on "Market Mania" from coindesk.com. The premise is that market mania is normal, but also that crypto should get beyond it. The idea being that when it does get beyond it, there is value at the end of the tunnel by not being driven by mania.

To me, this article is about 20 to 50 years premature.

Why Mania Happens

The mania of the cryptocurrency market does not happen because there are get rich quick schemes. Even the modern stock market has penny stocks which are "get rich quick" schemes. The get rich quick scheme has never left the stock market in the 100+ years since its inception. What happened was, enough legitimate projects got going on the stock market that people stopped paying any attention to the get rich quick nonsense. It has been there all along, and is probably worse today than it ever was.

So then, what causes mania? Mania in cryptocurrency happens because the market cannot expand quickly enough and reliably enough to encapsulate the speculative value of the future cryptocurrency market. What this means is that in the future, investors know the market will be valued higher. The present market today is unable to reliably reflect that future value we know exists.

In a mature market, if we know the market is going to be worth 20% more several years from now, speculators will buy into that vision increasing price. After price increases, perhaps the market will only then be worth 15% more several years from now. That interest rate gain is balanced against other investment opportunities such as the Federal Reserve Interest rate the banks ultimately provide in money market accounts. That interest rate is also balanced against corporate bonds, and real estate.

The present cryptocurrency market cannot encapsulate the anticipated future gain for two reasons I can think of:

1. Many of the projects which will represent the bulk of cryptocurrency value 5 years from now, likely do not exist in present. This means that the great projects which may represent new phases in cryptocurrency development within society, likely do not presently exist, so we are unable to invest directly into them.

2. When the market increases price in order to account for the future anticipated value, the future anticipated value is so high than the market turns into a bubble and explodes due to short-term speculation. It is fine to say that bitcoin will be worth 20x five years from now. Yet when bitcoin moves 10x, speculators and investors are sitting on such massive gains that profit taking is inevitable and necessary. Profit taking at a higher market capitalization value can be enough to topple the market since the profit-taking in dollars may exceed the short-term accumulation from speculators entering the market with dollars. That the market may be "cheap" long-term is irrelevant to the short-term situation of buying and selling.

Market Mania means we have not reached Market Maturity

Manias and panics are a normal part of an early market phase of a long-lasting technology. Fads get one phase. They come and they go. Bitcoin has already had two phases. If it was a fad, it could have never come back from the 2015 bottom.

By going through cycles of bubbles and then ensuing panics, this is a historical sign we are dealing with a game-changing technology that drives an over-exuberance of speculation in the short-term, but in the long-term ultimately proves to be well-founded optimism.

When Market Maturity Happens there is no money to be made

Once crypto enters market maturity, it will no longer be a good investment. To me, good investments need to produce returns that are worth our time. Yes, if I had 100 million and I get a 10% return in a year, this is something worthwhile. The average person does not have these resources.

In market maturity, the days of making 800%+ in a year will be gone. I am in no rush to get there.

Article: https://www.coindesk.com/%E2%80%8B%E2%80%8Bmarket-mania-is-unavoidable-but-crypto-must-get-past-it/

---

I am excited to be joining up with @timm .