Speculation Is Good (for Crypto)

Speculation Is Good (for Crypto)

Velocity, passion, fearlessness: what powers the crypto surge and what makes it different from previous tech booms.

It was a busy week for the cryptocurrency industry in New York, with in-person conferences, workshops and parties filled to the brim with crypto enthusiasts. After the shutdowns of COVID-19, it had the feel of a revival. And while this was nothing like the crowds of Consensus 2018, it also felt like the continued gains in decentralized finance (DeFi) usage, non-fungible token (NFT) markets and altcoin tokens were showing up in that particular breed of hype and buzz this community tends to muster during times of speculative fervor. This week’s column explains why this is not only inevitable but, in a volatile but catalytic way, a key driver of growth.

Meanwhile, in this week’s episode of the “Money Reimagined” podcast, my co-host Sheila Warren and I conduct the second in our “OG” interview series with legendary investor Bill Tai, who began mining bitcoin in 2010 and has been an early investor in success stories such as Zoom and Canva. Tai is now helping a team called Nfinita harness the power of NFT communities to raise money for charitable causes. Nfinita’s CEO Danny Yang joined in the conversation. Two images prominently displayed on multiple LED screens caught my attention as I wandered New York’s Javits Center during Monday’s opening of SkyBridge Capital’s SALT conference: a sponsor board stacked with crypto companies’ logos and a promo for a talk by newly converted NFT fanatic Paris Hilton .

Juxtaposed, those images conjured a question that often arises whenever cryptocurrencies are in a bull market phase: Is the noise a sign the industry is poised for explosive, mainstream integration, or are we seeing the kind of over-hyped, celebrity-infused excess that portends an imminent collapse in crypto markets?

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That might seem contradictory. So, let me try to break down why it’s not and also explain why this Wild West, boom-bust state of affairs is an unavoidable, intrinsic feature of how this industry innovates and grows.

On the one hand, the hyped-up presence reflects a cashed-up industry with both the financial wherewithal and the motivation to try to woo the deep-pocketed institutions attending one of the investing industry’s biggest annual conferences. Why would digital asset companies like lead sponsor NYDIG take on such a large, expensive presence at SALT if they didn’t sense a huge, growing opportunity from institutional investors?

After all, the SALT main stage, featuring multiple crypto-themed sessions, delivered story after story of hedge funds and other traditional financial institutions exploring ever more adventurous investing strategies in bitcoin, DeFi and even NFTs.

On the other hand, there was a very late-2017 feel to the crypto presence, not only with SALT’s own celebrity lineup but at numerous other sideline conferences in New York, such as the Digital Assets Summit, and at late-night parties at rooftop bars and expensive dinners. It’s hard not to worry that as NFTs and various “Eth-killer” altcoin tokens reach lofty new heights, that we’re due for a rerun of the 2018 “Crypto Winter” that followed the previous year’s initial coin offering (ICO) bubble.

Here’s the thing: it’s possible to project – and to prepare – for that selloff while still remaining strongly convinced that the frenetic investment and marketing activity is a sign of bigger, more important things to come. An amped-up money and hype machine is a fundamental driver of the self-perpetuating cycle of innovation and development that is growing and will continue to grow the crypto ecosystem.

People will lose their shirts, yes. But before then, these unfortunate buy-high-sell-low victims will have contributed to the rapid capital formation and opportunity creation that’s building the technical and social infrastructure of a new, decentralized financial system. [abridge here]

Economist Carlota Perez has famously shown that at key technological turning points in history, speculative bubbles have been integral to how society incorporates transformative technologies into the economy. Even as it fuels hype, along with momentum trading and big price overruns, the cheap money generated by investor speculation flows into a growing variety of new projects and enterprises that are built on the new technology. This helps to establish the technology and create a base for the economic transformation it later enables.

A good example was the dot-com bubble of the late nineties. At the time, […]

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