By Alina Yalmanian
Image: https://visualhunt.com/photo/108467/
Something that has always baffled me about humans is that we seem to never learn from our mistakes. We tell ourselves that we will, but when that crucial moment finally comes we end up taking decisions that lead us to the same regrettable situation as before. The past few months have justified my vision on humankind as we are again jumping head first into the next possible economical and financial crisis. The last time we found ourselves in a similar situation was in 2008 with the housing market. Ten years later we have managed to create yet another bubble that is waiting to burst and take down all those involved in it. Instead of the housing market, this time it is Bitcoin that is making people lose their ability to reason.
By now, everyone has heard of Bitcoin. It has become one of those topics that comes up during dinner with friends about which everyone pretends to know what they are talking about. But one cannot reproach them for their lack of knowledge on this topic, as few truly understand how Bitcoin work. It is one of the best kept and most talked about secrets in the financial world, which is precisely what makes it so dangerous: people are getting involved in such a dynamic yet complicated matter without being aware of the consequences of their actions.
Bitcoin would not have been such a pressing issue if its area of influence had stayed within the financial world. However, that is not the case as it has become alarmingly popular among all different layers and groups of society. Now even teenagers have started buying Bitcoin. There are multiple reasons for this recent buying frenzy. The most common and perhaps most worrying one is that people know that buying Bitcoin can be profitable, which of course strongly incentivizes them to get involved in the business. Since that is a widespread point of view, most people follow that logic and start buying the cryptocurrency, making it increasingly popular and driving its price up. Charles Kindleberger, a historian of stock market bubbles, once wrote: “There is nothing so disturbing to one’s well being and judgment as to see a friend get rich.” That mindset is especially present and relevant today as people are more than ever driven by greed and competitiveness.
I am convinced that cryptocurrencies are a fascinating topic, yet the reality is that the vast majority of us do not know how they really work or do not care to know how they work as we are aware that they are painfully complicated. Which makes the fact that people still buy bitcoins just for the sole purpose of buying them and making money even more absurd. The algorithms that create bitcoins are not only kept secret from the public but are also known to be mind-blowingly complex. Why do people then willingly throw themselves in the way of disaster? Why do people participate in the bitcoin craze to the point that the value of one bitcoin had reached $18,000?
The answer is sadly simple as it can be observed in various examples across history: people get easily dragged into a hype – and they enjoy it. As Charles Kindleberger hinted, people are driven by greed and competitiveness to the point that they will risk their savings just to be part of a group or a movement. The problem with that is not only that it makes one disappointed in human behavior and habits, but on a more practical note it can have some real hurtful consequences. The same way people follow others into a movement, they also stop caring for it as soon as others become disinterested and move on. For asset bubbles – as we have experienced in 2008 and will inevitably see with Bitcoins – this means that at some point, some people will become afraid or intimidated by the power and the impact of the hype: typically prices of Bitcoins will climb so much that it will make some nervous enough to start selling theirs. Others will take that as a sign and start selling as well, hoping to make profit before the prices and the value plummets. This in turn generates panic, which is why everyone starts selling, driving the prices into the ground. This is the point when people start losing money: the Bitcoin they had bought for thousands of dollars is suddenly worth close to nothing. That is the usual unfolding of events when it comes to asset bubbles and the hype around them.
Besides the material damage that takes place when people inevitable start losing money, what has me even more worried is the way we humans behave in such instances, how easily we are swayed by the actions of a few. As soon as a number of people participate in a movement or are part of a group, we seem to lose all reason as we are suddenly taken over by the desire to belong, to be part of something. Greed, jealousy and an unexplainable longing to fit in rule and determine our actions to the point that we become blind to the harm we are causing ourselves.
When I look at the bitcoin bubble and the hype that has taken people by storm I do not only see an asset bubble in the financial markets – I see a possible weakness of human nature that can be easily exploited. If we seem to fail to learn from our past financial and economic mistakes, what says that we won’t also fail in recognizing the resurgence of past political disasters and tragedies? The rise of the far-right all across the world, and especially in Europe, certainly underlines that possibility. As in economics when it comes to hypes and asset bubbles, in politics we are too often driven by the desire to be part of something bigger than us – by the desire to make America great again for example. When I look at the Bitcoin bubble, I see one of many examples and possibilities of people, in economics but especially in politics, losing their capability to reason logically and start hurting society. Too often we become sheep following the masses or those who pretend to know what they are doing. Perhaps even worse, we follow those who exploit these weaknesses to their advantage. If history and all the tragedies that come with it has taught us one thing, it is to use our mind and reason instead of being swayed by petty ambitions and harmful emotions.
Alina Yalmanian is a first year student, whose origins and nationality are too complicated to be explained in 2 lines. Plays the drums and practices martial arts even if she really does not look like it. On the Loose runs once a month.
