Whenever there is an (artificial) economic expansion, driven by cheap credit and too low interest rates, it is sooner or later bound to go wrong. What we do not know in advance, however, is how things exactly go wrong. We only know that – at an artificial interest rate – malinvestments are made in certain sectors of the economy. In the 90s, we saw malinvestments in internet (startup) companies, domain names and the NASDAQ. In the run-up to the 2008 crisis the malinvestments were mainly concentrated in the housing market, house flipping and mortgage lenders. And this time? Where do the bubbles form?

We talked earlier about how – due to artificially low interest rates – stocks are yet again overvalued, especially when we look at technology companies. But also the recent cryptocurrency fad cannot be overlooked. Bitcoin, for instance, rose over the course of a few months to a record high of almost $20,000 dollar. Many crypto speculators seem to get rich quick by doing nothing; even gold investors began doubting themselves why in heaven’s earth they were invested in precious metals, missing out on the crypto craze (in finance, we call this FOMO, “Fear Of Missing Out”). Whereas at the time (in the 90s) many domain name speculators became very fast very rich, this time around we see cryptocurrency speculators doing the same. Just like domain names at the time, it is cryptocurrencies now which are – unfortunately – the victim of speculative excesses.

Do You Still Doubt Cryptocurrencies Are in A Bubble?

The share price of Dell went through the roof during the dotcom bubble of the late 90s, just to collapse months later. Even though Dell as a company did have fundamental value, its price was way too high and out of line with its value. Source: Yahoo Finance

Volatility and Bitcoin as a Unit of Account

The Crypto Bubble That, According to Some, Is Not a Crypto Bubble

Even If the Current Bitcoin Price Would Be Justified by Its Fundamental Value, Then We Still Have a Crypto Bubble

This Is One for the History Books


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