When it comes to finance, if belief supersedes reason then it’s called speculation. When it comes to Bitcoin and other cryptocurrencies — are belief and faith trumping reason and logic? The answer is yes.
Robert Shiller, an economics professor at Yale (and expert on bubbles and speculation), suggests that consumers should read about the history of Bitcoin before they invest in it. Shiller claims that Bitcoin bears a number of similarities to the Wizard of Oz’s cautionary tale on the follies of the gold standard “the yellow-brick road.” As an authority on the topic and as someone who has analyzed and wrote about both the housing and dot.com bubbles (he also won a Nobel Prize in economics for his work) — Shiller has called the Bitcoin fad a bubble.
Here’s a quote from him on this subject:
“I think that has to do with the motivating quality of the Bitcoin story. And I think, what’s so exciting? You have to think like humanities people. What is this bitcoin story?”
The allure of Bitcoin and other cryptocurrencies is the belief that someone can become rich simply by investing a small amount of money into the currency and doing nothing else.
The government doesn’t regulate or control Bitcoin, and individuals around the world embed a cryptic code which makes it nearly impossible to hack. And that’s it: the government doesn’t control it, and it sells itself as a get-rich-scheme that requires little to no work.
Again Shiller is noted saying:
“Bitcoin is the best narrative possible. It’s a great story. It’s a mystery based on a person who wrote a brilliant paper that nobody seems to have found (Satoshi Nakamoto).Who is this person? Maybe he doesn’t exist. But when I’m lecturing at Yale my students wake up when I talk about Bitcoin. I can see it in their eyes. I’m interested in the narrative.”
Bitcoin is unregulated (although no one knows for sure how absent the government is from cryptocurrencies). Large banks hate it. Drug dealers allegedly use it on the dark web, and other nefarious people use it for illegal activities online. Even the CBOE and the CME Group are offering derivatives that allow individuals to hedge or speculate on the price of cryptocurrency.
That’s the story in a nutshell. Bitcoin came out of nowhere, and essentially nothing is known about it. Bitcoin is a bubble, and for the vast majority of people that are inside of a bubble when it bursts — it will only end poorly, and hundreds of thousands of people are going to lose money.