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The news this past week was dominated by the “astounding” crash of the Cryptocurrencies, or Cryptos, with estimated losses running into the Trillions of Dollars. Of course, the broader Tech stocks too fell along with some “blue chip” brick and mortar firms. However, the biggest news here is the “reality check” for all those who bet big on virtual currencies. Indeed, there is much schadenfreude going around, especially among the Boomers for what they see as a quintessential comeuppance for the Millennials and the Gen Zers who talked big for much of the past few years about how the Cryptos are going to change the world.
Frankly, I am not surprised for the simple reason of “been there, done that” during the 2000s when the Dotcom mania resulted in tears for many who predicted the arrival of an era of permanent prosperity. Back then, money was plenty as the Fed flooded the economy with liquidity, only to “pull the plug” with a rate hike that brought the Dotcoms crashing down to Earth. This is the same scene playing out now, where the Unicorn bubble is next along with the puncturing of some Big Egos of our Tech overlords, like Elon Musk, whose views change by the hour, as can be seen from his shenanigans over the Twitter deal.
Having said that, I am not advocating a complete rout in the Digital and Tech stocks. Just that I have a beef with anyone who bets against the “inevitable” boom-bust cycles that are part and parcel of Free Market Capitalism. Moreover, I am also against easy money being thrown at 20 and 30 somethings without “solid” business models and sound ideas. However, I do admit that VCs (Venture Capitalists) and Angel Investors do exist to fund a Million Ideas before the Next Big Thing appears and this “creative destruction” is necessary for innovation and tech to evolve.
On the other hand, as I mentioned earlier, there is a broader recession brewing and every economist and their dog is predicting more pain in the months to come. While this might be music to the “vulture” funds who pick stocks on the cheap, it is a wake-up call for all of us to hedge our investments accordingly. The coming crash is also a “moment of truth” of sorts for the TikTok generation, fed on a diet of ever-increasing stock prices and investors chasing them along with social media and networking sites like LinkedIn, wooing the “Creators” and “Influencers” in the hope of the Next Indian Idol kind of success.
With so much “turbulence” ahead, there is much to despair for the investors holding Cryptos. More so as many of the Millennial/Gen Zers who “lost out” over the last decade or so on mainstreaming themselves invested heavily in Cryptos and displayed the same “irrational exuberance” that my Gen X generation witnessed in the late 1990s. As then and happening now, there is a market “correction” going on and who knows, even Big Tech overloads such as Facebook and Google might be among the losers. Already, Netflix is being called out as a big loser of the ongoing “churn” and with predictions of a further rout in the economy.
Returning to the Cryptos, the hype was mainly around how this digital asset class would be “immune” to crashes since the underlying “Blockchain” tethering them would cushion them from any adverse circumstances. However, my guess is that most of us did not really understand Cryptos and how they work, and even some of the investors too did not fully grasp them, given that most of the actual creators of virtual currencies remain anonymous to this day. In addition, any “unregulated” market is prone to such volatility as without someone “steadying” the “invisible hand” of the markets, there is enough scope for wild movements, both ways.
Having said that, all is not lost for Cryptos as I noted earlier, Web 3.0 and NFTs (Non-Fungible Tokens) and their synergies with Cryptos would lead us to the Digital Age. Perhaps the Crypto crash was the first “real” crisis of the Digital Age and I feel that there are many more to come in the years ahead. Like all investors, we must “ringfence” our investments and so the hope is that the market for Cryptos too would evolve and mainstream with regulation and exist just like any other market/exchange for asset classes. To conclude, the Crypto crash should be seen as an “inevitable” event in the long march to the Digital Age.
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