Housing or Dotcom: Which Bubble Does Cryptocurrency Mania Resemble? – BITCOIN NEWS It seems like the dotcom bubble all over again, or the housing bubble all over again Thats Robert Shiller, the Nobel Prize-winning Yale economist, quoted in Fortune magazines cover story on bitcoin

So: dotcom or housing? Pick one, professor Because theres a meaningful difference Debt bubbles, like the one that overheated the US housing market in the 2000s and ultimately sparked a global financial crisis, leave behind encumbrances

Tech bubbles, like the 1990s internet mania, leave behind infrastructure The last great debt bubble gave us $700 billion of bailouts and more than 2,000 pages of legislation (not counting the reams of regulations putting the Dodd-Frank Act into practice) in the US alone Rather than ending too big to fail we ended up with the biggest TBTF institutions ever, zombie foreclosures that sat vacant for years waiting to be repossessed, and the spectacle of Occupy Wall Street stinking up a public park and scaring the children

The last great tech bubble, on the other hand, funded the rollout of fiber-optic cable networks and research into 3G mobile computing It fueled the development of smartphones (Apple, Samsung), algorithmic search (Google), big data logistics and e-marketplaces (Amazon, Alibaba), social media (Facebook, Twitter), cloud computing (Dropbox, AWS), the platform and app economies (Airbnb, Uber) and so forth (To be fair, tech-stock shenanigans from that era were also a factor that led to Sarbanes-Oxley) As with a century earlier, when a boom-bust cycle in the 1880s and 1890s left behind a national railroad system, the dotcom bubble totally transformed the economy

So while cryptocurrencies are almost certainly in a bubble – I mean, come on, dogecoins market capitalization is above $1 billion, and its software hasnt been updated in two years – the pertinent question is what kind of bubble Pain ahead True, either way, there will likely be steep financial losses, tears, layoffs, business failures, a funding drought, recriminations, pious editorials, lawsuits (meritorious and otherwise), prosecutions, congressional hearings, political grandstanding, unfunny Saturday Night Live skits and, quite possibly, burdensome new regulations But there probably wont be bailouts For one thing, bitcoin and its myriad clones and mutations are, even now, too small and too segregated from the broader financial system to warrant such an intervention

And given the threat that decentralized money poses to tax collection and financial surveillance, its not something most governments would be inclined to rescue from the abyss So crypto bagholders will be on their own – as it should be If you dont see why, google moral hazard Further, if someone makes a stupid bet on a cryptocurrency that goes south, his losses are limited to the cash he invested

(Hopefully not from his retirement savings) In sharp contrast, when housing prices returned to earth, the suckers who had taken out subprime mortgages still had six-figure debts hanging over their heads Even after the borrowers mailed the house keys to their lenders, the foreclosures left a stain on their credit reports for years before they could get their financial lives back So the potential damage from this bubble is limited when compared to the crash of 2008

And arguably the upside is greater Because this bubble could leave behind the rails of a new and improved financial system Laying foundations It is true that, as Lightning Network co-founder Elizabeth Stark recently noted on Twitter, many of the people doing important infrastructural work in bitcoin do so as a labor of love, not for the money As the old saying goes, cypherpunks write code

And its hard to imagine many of the frivolous initial coin offerings (ICOs) out there leaving much of a legacy, apart from souvenir white papers (our eras version of those vintage stock certificates you can buy for a few bucks from Wall Street sidewalk vendors) But its also hard to imagine that none of the blockchain projects being showered with money by venture capitalists and, increasingly, ICO contributors (an unfortunate euphemism) will amount to anything The ones that do may form an important, if intangible, infrastructure for global digital commerce Possibly in ways we cant yet imagine The spreadsheet and the relational database are examples of applications of pre-internet computing that no one foresaw as they were building computers – transformative technologies that no one could have conceived of until after all the investment in a new platform was done

And of course theres the internet itself, whose humble beginnings were in Cold War military commanders need for a resilient communication network in the event of a nuclear attack Robert Shiller will always be a hero for calling out the US housing markets excesses when it was politically incorrect to do so But hes mistaken for speaking of financial bubbles as if they were interchangeable and equally destructive

A final note: One good thing did arguably come from the last debt bubble, albeit indirectly If the crisis hadnt shaken the worlds faith in centralized institutions and financial intermediaries, we might not have gotten bitcoin