There’s no doubt in my mind that financial markets are in a bubble right now. The thing is that when you’re in a bubble, it’s very difficult to know what fair value may be, or when it might burst. Click to tweet
Being in a bubble isn’t necessarily a bad thing, in fact it can be quite fun. In the last three months, virtually all of the top 100 cryptocurrencies (by market cap) at least doubled.
Several are well into four-figure gains, or what people in the biz called 10 times return. In contrast, the S&P 500 has returned more than 13%, which is also an impressive figure.
To me, it’s hard to fathom how so many different projects managed to grow the market value of their coins by that much in this short stretch of time.
For some, it’s certainly justifiable, but for many, it can’t possibly be. That’s not to say they won’t continue to pump quite significantly from here, for reasons stated above.
Also, I’m not really sure what charts of past stock market bubbles might help to understand the one we’re currently in. There are certainly remarkable differences. The amount of money being pumped into the markets through fiscal and monetary policy is unprecedented to say the least, a potentially infinite amount in fact.
The other major difference is the level of retail participation, which is simply off the charts. People are realizing today more than ever that there is a way to exit the cycle of the rich getting richer and poor getting shafted.
That exit lies in financial investments, and people are coming to this conclusion in droves. Financial markets are the main vehicle the rich use to get rich, and average citizens now have unprecedented access to these markets.
Of course, these new players can be uncomfortable for the incumbents, as we recently saw with GameStop. But on the other hand, newbie retail investors have a very difficult time recognizing true value.
They might easily misconstrue for example, an endorsement from a celebrity about a specific coin, and confuse it for actual rise in demand due to a wider real-world usage of the coin.