Cryptocurrencies such as Bitcoin & Ethereum have ushered in a new era for the world, with Bitcoin hitting highs of nearly $6,000 yesterday.
Most of us in the industry have been caught off-guard by how (and why) the market capitalization of crypto currencies & assets has exceeded $150bn so quickly this year. I’ve spent a fair amount of time thinking about this and where we are going to next and so I’m going to try to weave a number of seemingly unrelated observations together in this post to, hopefully, light the way.
Firstly, the big question is “Are we in a bubble?”. The short answer is : “No-one knows!”. I like to point out that the total market value of cryptos are less than Yahoo alone, at the market peak. Also, the behavior of cryptos is remarkably different from stocks and bonds — these are network products, not stocks or bonds. They typically don’t have yields (unless they are a security). Their utility is derived from adoption and network utility. Network effects lead to parabolic/exponential growth and the human mind is famously inadequate at being able to see or predict parabolic value creation.