Was the crypto bubble the worst of its kind? A Bloomberg writer attempts to make that case. I strongly disagree and take the other side of the debate.

Worst of Its Kind?

Bloomberg writer Merryn Somerset Webb says FTX Crypto Bubble Really Is the Worst of Its Kind.

Investment bubbles tend to leave behind something useful when they pop. Unfortunately, crypto looks like an outlier.

The whole miserable FTX debacle should remind us of the fragility of the case for crypto in general https://t.co/a5jM418Sdo

— Bloomberg Opinion (@opinion) November 25, 2022

Webb compares the crypto bubble to the bicycle bubble of 1896 that left us with better bicycles, automobiles that were initially so slow people mocked them with "get a horse", and the DotCom bust that left us with far better technology.

Crypto Bubble Was Contained

For starters, the crypto bubble was contained. Several trillion dollars of wealth collapsing to nothing, counting the plunge in Bitcoin and Ethereum. However, little if anything happened outside crypto.

There were no bank failures, no bailouts, no taxpayer money spent. If you invested in FTX, LUNA, or any other such tokens, you lost it all, but otherwise life went on. 

The fact that the bubble was contained to crypto is a good thing, and in and of itself that's worth exploring.

In the housing bubble and collapse, then Fed Chairman Ben Bernanke called the Lehman bankruptcy his biggest mistake. I propose it was his only success (accidentally of course). When you continually bail out financial institutions and set interest rates too low, you foster, if not outright encourage, speculative manias. 

What about the knowledge gained?

We have learned something from this, even if it's nothing more than to let bubbles collapse. The Fed failed to do that in 2002 and 2008, and before that in the Long Term Capital Management bailout.

As for Bitcoin and Ethereum, eventually that technology will come into play somehow, even if those coins ultimately prove to be worthless. The fact that we have seen no financial intuition failures over the crypto collapse is a good thing.

Down the road, I am positive some good will come from these ideas, even if we do not see it now.

More By This Author: