Cryptocurrencies: Are They Real or in a Bubble

Billionaire investor and founder of Oaktree Capital Management has said that cryptocurrencies ‘aren’t real.’

 

Marks believes cryptocurrencies are a fad similar to Tulipomania. Does he have a point? Certainly tulips went down in value from their peak and have never gone back up.

But when it comes Tulipomania, there are a number of issues to consider. For one thing tulips had only recently been introduced and become popular, so part of the initial high price may have been due to newness of the flower.

UCLA economics professor Earl A. Thompson says in a 2007 paper that the government had something to do with it. The Dutch parliament changed how tulip contracts functioned. In fact, futures contracts were to be presented as option contracts. Futures buyers didn’t have to buy the tulips but only compensate the sellers with a small percentage of the cost.

If Tulipomania can be explained as something other than a mere mania, then we can look for similar reasons in the present day as they affect the cryptocurrency market.

In fact, government has encouraged cryptocurrencies by make the dollar and other major currencies increasingly overpriced. Many of the buyers of cryptocurrencies are looking for something, anything, that will take the place of national currencies.

If this is so, as it seems to be, then we can expect that cryptocurrencies may fall a great deal during the next market crash, but at least some will not lose all value. In fact some may maintain value just like some dot.com stocks continuing strong to this day.

Is there a bubble in cyrptocurrencies. There seems to be and it could go higher, even much higher. Eventually there will be a crash. But that doesn’t mean that all cryptocurrencies will wither away. Chances are some will remain, changing the face of money with the addition of private currencies.

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