The Cryptocurrency Craze May Be A Bubble But Good Might Come Of It.

Someone asked me today on Twitter what I thought about the current cryptocurrency craze. I had to pause for a moment to wonder why anyone would think I might be an expert on investment bubbles. But in a certain very specific sense I am. 

I am a fan of something called “irrational exuberance.” And what, you might ask, is that? It is the phrase that then-Federal Reserve Board chairman Alan Greenspan employed in December 1996 to describe what already could be seen as an investment bubble waiting to explode. That was the dot.com bubble. Remember? Boo.com, Commerce One, Global Crossing, Pets.com, and all the rest? All worth billions one minute, then very considerably less -- or nothing -- the next. 

Greenspan’s colourful phrase survived and is used a lot today to describe the “irrational exuberance” surrounding Bitcoin, Ethereum and a whole list of other exotic-sounding cryptocurrencies and businesses based on them currently rocketing upwards in value. 

The thing is, though, the dot.com bubble didn’t just generate bankruptcies. Among its survivors are some the most successful companies today -- from Amazon.com to eBay.com to Priceline.com. Even Google, founded in 1998 -- ie, mid-bubble -- might not be on everyone’s PC and mobile phone today had it not been for, yes, exuberance. But rational exuberance. Those who had that survived and thrived.

The fact is I’ve spent three decades looking for and recruiting exuberant people. Not irrationally exuberant people. I don’t recommend looking for outright silliness as a job specification. But the rational ones are those who wind up succeeding -- as leaders of highly successful companies. Energy and excitement and innovative thinking are what I look for.

And I’m seeing a lot of that in the Bitcoin fervour. Let me give you some examples. 

Right now, the big question being asked in the relatively narrow global community of cryptocurrency traders is how to break down the barriers to the wider public -- that is, ordinary people who don’t sit in front of computers night after night flipping between Bitcoin assets and LiteCoin assets or Ethereum assets. Most have no idea what they are or how their values are arrived at. And never will. 

As a consequence, a lot of highly entrepreneurial people are coming up with real-world ways to use cryptocurrencies. A London landlord is now proposing to accept tenancy deposits in Bitcoin. In the US, Canada and elsewhere bank machines are surfacing through which users can extract actual cash -- “fiat money” as the cryptocurrency people term it -- from their Bitcoin or Ethereum e-wallets. In Australia, a couple of forward-thinking firms are starting to equip ordinary ATMs with new software which will do the same thing. 

ATMs of course have daily withdrawal limits. So a Romanian-American joint venture called BitLocation has come up with a different take on the concept. They’re going to equip ordinary foreign exchanges with a feed that will allow them to buy and sell cryptocurrencies, alongside euros, dollars and sterling. 

This is such a practical idea that I had an assistant look these people up. Tudor Vesa, BitLocation’s co-founder with a U.S. partner, is the very personification of rational exuberance. He even served recently as State Secretary for Information and Technology in the Romanian government. But above all, he is an entrepreneur and an innovator, but one with his feet planted firmly on the ground. 

He believes the irrationality of the cryptocurrency world is going to get reined in, sooner rather than later, as nations seek to regulate a currently unregulated sector. So he and his American partners had an idea. Almost everywhere in the world currency exchange companies have found optimal retail locations in which to do business -- and are, in most instances, already regulated. Their spreads -- how much they can earn from each transaction -- have limits. They need to register with financial authorities. They file anti-money laundering reports, along with identification documentation. 

“The wide adoption of cryptocurrency is basically begging for regulation,” Vesa says. “Bringing cryptocurrencies into the mainstream by making it available at regular FX exchanges and offices will create more social pressure on states to adopt some form of regulation.”

Vesa believes this is a good thing. I agree. Step by step, the irrationality of this particular form of exuberance will be edged aside. The bubble may well deflate, probably quite suddenly, but rationally exuberant people will continue to thrive.

“Leading countries are starting to take steps towards the acceptance of cryptocurrencies,” Tudor Vesa says. “Some are even working towards digitizing their own national currency. My belief is that eventually we will have digital fiat currencies -- national currencies -- traded on these markets alongside the most powerful crypto coins.”