HH A Short History Of Crypto Euphoria

from the International Monetary Fund

-- this post authored by Andreas Adriano

Financial bubbles are easy to identify after the fact. But how do you spot one in advance? It’s a question that has flummoxed generations of economists, not least the many who failed to foresee the global financial crisis. Now, with the rise of crypto assets, the question is taking on renewed relevance. Rather than engage in more or less informed intellectual speculation on the subject, we decided to consult the preeminent expert on bubbles: John Kenneth Galbraith.

Granted, the eminent Harvard professor and best-selling author of The Great Crash, 1929 and The Affluent Society died in 2006, three years before Bitcoin came into existence. But Galbraith predicted what could happen in a caustic book, A Short History of Financial Euphoria, in which he analyzes major speculative events in history, from the tulip mania of 1630s Holland to the Wall Street crash of 1987, and identifies their common features. His taxonomy would have nailed the dot-com bubble and the 2008 crisis. So let’s apply some of his criteria to crypto assets.

“The thought that there is something new in the world…"

“The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version," Galbraith wrote.

What does a leading crypto evangelist have to say? In an e-book titled Bitcoin vs. the 2018 Recession, Remy Hauxley, a self-described “cryptocurrency educator," says Bitcoin is “unlike anything we have ever seen. It’ll change the world." Hauxley calls Bitcoin “a new form of gold, of money, of stocks. It’s a trifecta." (He doesn’t explain why a recession is so surely coming in 2018.)

“The extreme brevity of the financial memory…"

“Financial disaster is quickly forgotten," Galbraith observed. “When the same or closely similar circumstances occur again, sometimes in only a few years, they are hailed by a new, often youthful, and always supremely confident generation as a brilliantly innovative discovery in the financial and larger economic world."

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