In Praise of the Cryptocurrency Bubble


Michael J. Casey is chairman of CoinDesk’s advisory board and a senior advisor of blockchain research at MIT’s Digital Currency Initiative.

I was at Token Fest in San Francisco last week. It was truly a “Fest.”

The cocktails flowed at a VIP party the evening before opening. The next morning a band of mariachis and an elaborately costumed troupe of dancers led the first waves of a total of 1,800 attendees into the theater. There, they heard accounts of how, despite regulatory risks and a serious correction in most crypto-asset prices, token projects and ICO fundraising events are still booming.

It all had a very late-1990s feel to it.

And, in case you’re wondering, I mean that in the very best of ways.

You see, although people who lost their shirts during the dot-com bubble might disagree with me, I regard that end-of-millennium “” phenomenon as a constructive event. And I apply the same positive mindset to the current crypto bubble. (Yes, this IS a bubble. People will lose money. Many coins will die. This isn’t FUD.)

One way to look at the current bubble is through the lens of Carlota Perez, the Venezuelan theorist who wrote about the interplay between technology and capital markets in an influential book called “Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages.” She concluded that bubbles – and their inevitable collapse – are an integral, in fact necessary, part of the economic dynamics through which transformational technologies take root in society.

Speculation is an unavoidable accompaniment to periods of technological transformation. Whenever a new technology contains a wide-enough accepted promise that it can redefine core aspects of how our economy functions, people start throwing money at it.

It was the same with the advent of railroads, of electricity and of the internet – the latter manifest as the dot-com boom. This happens because no one yet understands how the new model of doing things will play out, and they don’t yet have any idea who the winners will be. What they agree on is that something big is happening. So society collectively engages in this wild, scattershot speculation.

That, I believe, is what’s happening now.

The good news, then, is that the crypto bubble is in some respects an affirmation that the technology we’re all so excited about it does indeed have huge potential even if it is still too nascent for it major, disruptive deployment in the mainstream economy.

The bad news, for those heavily invested in speculative tokens – many of you readers, no doubt – is that the bubble may have to burst, even more painfully than it has, before we can properly unlock this technology’s profound potential.

Here, the dot-com bubble is informative. The more sophisticated analyses of that otherwise painful event recognize how much the boom contributed to the development of the Internet.

New infrastructure

All that cheap capital, initially invested in underdeveloped projects and a lot of vaporware,, Webvan and so forth – helped pay for the infrastructure upon which the future internet was built.

That money paid for the rollout of fiber-optic cables, went into R&D in 3G mobile technology and funded massive data centers. All of that “stuff” was then available, at deeply discounted rates, for developers to work with after the bubble burst. It enabled everything that came afterward: smartphones, social media, algorithmic search, cloud computing, e-marketplaces, Big Data, etc. The sharing and platform economies were made possible by this infrastructure.

I think something similar is going on now. It’s just that we’re not building physical infrastructure. It’s social infrastructure.

The tokens that are part of this current investment mania for ICOs are incentivizing the formation of collaborative networks of developers and entrepreneurs. Together they are coming up with new ideas, each one iterated on top an earlier one. These ideas will shape the decentralized economy of the future.

Importantly, these ideas are being codified in open-source software that everyone can access. Just as Satoshi Nakamoto built bitcoin upon a series of pre-existing technologies – public key cryptography, Merkle trees, Hashcash and peer-to-peer system design – so, too, will future developers be able to take the pieces of this open-source code that they like and devise new composite technologies.

The code is public scaffolding. And a lot of it is being constructed right now.

Few people would have predicted the business models that gave rise to the post-dot-com titans: Amazon, Google, Facebook, Apple, Netflix, Uber and so forth. That’s the beauty of open-source, extensible platforms. They are the base upon which new second- and third-layer technologies can be implemented and flourish.

Well, now that we’re laying so much more of that open-access platform, we can apply boundless imagination to what may lie ahead. We can imagine a decentralized super-structure in which those centralized internet behemoths become the next in line for disruption, that their data-hogging models become redundant.

I have no idea who or what will be the winners in the decentralized economy of the future. But the framework for those ideas is being laid right now.

And that’s worth celebrating.

Bubble image via Shutterstock.

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