William Quinn, a senior lecturer at Queens’ University, Belfast, with expertise in financial bubbles, said that crypto either is a “stupider bubble than any previous bubble” in financial history, or “a smarter Ponzi than any previous Ponzi” — or something else entirely.
What Happened: In his book, "Boom and Bust: A Global History of Financial Bubbles," Quinn said that the cryptocurrency bubble of 2020 does not mirror the patterns of financial bubbles of the past.
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Quinn suggests that in the case of cryptocurrencies there is potential for the financial system in which it operates to be subjected to more rapid changes and higher levels of risk and volatility than in historical financial bubbles.
“So we have two possibilities,” he wrote in a blog post, adding, “And the truth is probably somewhere in the middle.”
Cryptocurrencies have three defining features that set them apart from past financial bubbles and make them a uniquely terrible investment, according to Quinn.
He says firstly, unlike other assets, cryptocurrencies have no use-value unless there are other investors willing to accept them. Secondly, cryptocurrencies do not create any cash flows. Last but not least, some cryptocurrencies can only be paid for using converted fiat currencies, such as U.S. dollars.
For example, Bitcoin BTC/USD miners usually buy electrical equipment, mining computers and even real estate using U.S. dollars.
Quinn said the real question could be whether to classify crypto as a “fraud” or a “bubble.”
“Every previous bubble I’ve encountered has involved either a commodity, a collectible, or an asset with associated cash flows…[b]ecause historically, producing a financial asset with no associated cash flows and marketing it as an investment would have been considered fraud,” he wrote. “And a fraud and a bubble are two different things.”
Price Action: Bitcoin was trading at $17,205, up 0.02% in the last 24 hours, according to Benzinga Pro data.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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