bubbles that build worlds

I had initially planned to release this piece on Friday, but the past few days have been unusually eventful and kept me plenty distracted. Just yesterday, we welcomed the 47th president, Donald J. Trump—a figure perceived by many as a hopeful ally to the crypto community. While the lack of a Strategic Bitcoin Reserve announcement on day one disappointed the markets, CT was quick to point fingers at whats been perceived as grift. Though I don’t disagree that the Melania token was excessive, I believe the positives of a pro-crypto administration far outweigh the short-term negative vibes. After reading Howard Marks' recent memo On Bubble Watch, I found myself reflecting on the importance of recognizing when you're in a bubble and how to spot when you’re in a bubble.

On Sunday, I tweeted about how grift is effectively baked into the system now—whether we like it or not. In the tweet, I referenced Devil Take the Hindmost: A History of Financial Speculation, one of my favorite reads of 2024. The book dives into the recurring patterns and psychology of speculative manias throughout history. It may sound cliché, but history truly does rhyme—especially when it comes to greed and human behavior. Here’s a snippet from the tweet:

“The new wave of deregulation and crypto is going to bring more grift than most people can imagine. But on the flip side, it’s also going to unlock world-changing innovation in finance, social systems, capital formation, and digital transformation. It’s a package deal—grift and progress come hand in hand.”

I genuinely believe this, and the book aligns closely with that view. The key lessons we can apply to today’s scenario center around three main points: first, human psychology drives greed and speculation; second, speculation thrives on innovation and change; and third, a bubble burst is almost always inevitable in the end.

Speculation is as much about human psychology as it is about financial markets. In the book, Edward Chancellor highlights how emotions like greed, fear, and FOMO fuel speculative manias—feelings that anyone in crypto can likely relate to on some level. During bubbles and moments of frenzy, rational decision-making often gives way to irrational exuberance, with investors chasing rising prices while ignoring fundamental value. This "groupthink" mentality creates a self-reinforcing loop, where climbing prices draw in more buyers and inflate the bubble further—a phenomenon that’s glaringly evident in various crypto narrative charts (think NFTs, gaming, and countless meme tokens). That’s not to say there isn’t real opportunity or potential innovation in these spaces, but it’s crucial to recognize when you’re in a bubble and understand the rules of the game. So, when the hot new shiny thing starts dominating discourse, backed by thinkboi pieces promising vague utility without tangible value matching price action—pause, take a breath, and reevaluate.

Throughout history, speculative manias have often coincided with periods of transformative technological or economic innovation—much like the era I believe we’re in with crypto today. From the railway boom of the 19th century to the dot-com bubble of the late 1990s, these groundbreaking moments sparked immense excitement and lured investors chasing the next big thing, often with blind optimism and dreams of untold riches—suddenly, everyone’s friend and their friend has a “hot tip” to make you some monnnnnnayyyy 🤑. What’s remarkable, though, is how these bubbles, despite the inevitable busts, leave behind world-changing advancements—the railroads that industrialized nations, or the internet that transformed how we communicate, do business, and socialize. Similarly, stablecoins, DeFi, and smart contracts have the potential to reshape the global financial system, revolutionize capital formation, and create entirely new frameworks for governance and coordination. While speculation runs rampant and FOMO amplifies irrational exuberance, it’s this very frenzy that fuels investment into groundbreaking infrastructure and innovation.

One of the most striking lessons from Devil Take the Hindmost is the inevitability of financial busts following speculative booms. Bubbles, by their very nature, are unsustainable—they thrive on ever-increasing optimism and often leverage, yet even a small shock to investor confidence can bring everything crashing down. This dynamic is a recurring theme in crypto, as we saw this week when the release of $MELANIA sent the freshly launched $TRUMP token plummeting over 50%. I’m not speculating on the success or failure of these tokens but instead emphasizing how fragile these markets can be when confronted with new developments. While some tokens may eventually cultivate deep, resilient communities that drive perceived “value” over time, the harsh truth is that many are simply bubbles reliant on the greater fool theory—until you find yourself as the greater fool. The ease of creating tokens and launching fully funded markets using platforms like pump.fun has enabled bubbles to form almost instantly, flooding the market with speculative opportunities. At the same time, this same infrastructure acts as a launchpad for innovative companies to reach capital markets faster—it’s two sides of the same sword. If the speculative bubbles of the past had access to the 24/7 global markets and liquidity we have today, they would likely have been exponentially larger and burst much quicker. This constant cycle of speculation and innovation highlights the dual-edged nature of the crypto space. The technology underpinning it is remarkable and is just beginning to make impacts across the TradFi ecosystem.

Do I think we’re in a bubble right now? In my view, crypto itself isn’t a bubble, but the industry is filled with countless micro-bubbles. I can’t say for certain, but what I do know is that bubbles have always existed, and they will continue to exist. They range from small, fleeting moments of speculation to massive, market-shifting frenzies, and I see examples of them regularly. I don’t view bubbles negatively—I simply accept them as part of the landscape that drives innovation. If I choose to engage, I do so with the awareness of the game I’m playing. As we navigate the era of crypto speculation and innovation, it’s crucial to embrace both the immense opportunities and the inherent risks. The cycles of greed, fear, and innovation aren’t new, but the scale and speed at which they unfold have been supercharged by this tech stack. History reminds us that while bubbles are inevitable and often painful when they burst, they also act as crucibles for transformative change. The key is staying grounded—recognizing when hype overshadows substance, understanding the patterns at play, and positioning ourselves to learn, adapt, and thrive as this wave unfolds—all while hopefully picking the winners that will endure. Progress and grift are inseparable, and how we navigate this duality will define not only the future of crypto but its role in shaping the world.