## Crypto Bubble? An Historical Analysis of Financial Crises ## Source details **Canonical URL:** [Crypto Bubble? An Historical Analysis of Financial Crises](https://www.imf.org/en/publications/fandd/issues/2018/06/crypto-bubble-historical-analysis-of-financial-crises-adriano) ## Other formats - [Markdown version](/en/publications/fandd/issues/2018/06/crypto-bubble-historical-analysis-of-financial-crises-adriano/index.md) - [Structured JSON version](/en/publications/fandd/issues/2018/06/crypto-bubble-historical-analysis-of-financial-crises-adriano/index.json) - [Bundle manifest](/en/publications/fandd/issues/2018/06/crypto-bubble-historical-analysis-of-financial-crises-adriano/bundle-manifest.json) ## Bibliographic details - Authors: ANDREAS ADRIANO - Published: June 1, 2018 - Volume: 55 --- ### Overview - Article: "A Short History of Crypto Euphoria" - Author: ANDREAS ADRIANO - Publication: F&D Magazine - Date: June 2018 - Focus: Apply John Kenneth Galbraith’s taxonomy of financial bubbles to crypto assets (Bitcoin, ICOs, tokens). ### Galbraith’s criteria applied to crypto assets - “The thought that there is something new in the world…” - Crypto evangelists claim novelty: example cited — Remy Hauxley calls Bitcoin “unlike anything we have ever seen. It’ll change the world.” Hauxley calls Bitcoin “a new form of gold, of money, of stocks. It’s a trifecta.” - “The extreme brevity of the financial memory…” - About a decade since the 2008 crisis and almost a generation since the dot-com bubble; many Bitcoin traders are too young to remember those episodes. - “The specious association of money and intelligence…” - Wealth confers adulation, reinforcing imitation and supplying “greater fools” to sustain speculation. - “Speculation became more and more intense…” - Rise of ICOs as the modern analogue to IPOs; tokens often confer no ownership rights. - Block.one has raised more than $1.5 billion since July 2017, despite indications tokens “do not have any rights, uses, purpose, attributes, functionalities and features.” - ICOs raised $6.5 billion in 2017, and more than $4 billion in the first quarter of 2018 (Wall Street Journal). - Many investors flip tokens to others eager to join the race. - “All crises have involved debt that has become dangerously out of scale…” - Leverage exists in crypto markets but overall debt exposure is unclear due to market opacity and minimal bank exposure. - Some crypto exchanges allow investors to borrow as much as 100 times the cash balance in their accounts. - A poll by LendEDU found a growing number of investors use credit cards to buy coins and then carry the balance. - Volatility example: anyone who bought Bitcoin in the last two months of 2017, when the price reached almost $20,000, faced severe losses. - Security risk: since 2011, Reuters reports hackers have stolen almost 1 million Bitcoins (worth over $9 billion in early May) from several exchanges. - “The speculative episode always ends not with a whimper but with a bang…” - Galbraith: bubbles end badly with scapegoating; societies rarely learn from them. - Comparative scale: at their peak, all crypto assets combined were worth less than 1 percent of global GDP, while tech stocks at the height of the dot-com mania were valued at close to a third of global GDP (Bank of England governor Mark Carney). ### Risks, uncertainties, and systemic considerations - Unknown magnitude of debt/leverage due to opaque, unregulated, early-stage market structure. - High individual leverage available (up to 100x) and growing use of credit to finance purchases. - Cybersecurity losses: almost 1 million Bitcoins stolen since 2011 (worth over $9 billion in early May). - Market-size comparison suggests limited systemic immediate risk: crypto assets < 1 percent of global GDP. ### Historical parallels and potential long-term outcomes - Past bubbles produced both destruction and lasting innovations: - South Sea Bubble, tulip mania, dot-com boom cited as precedents. - Examples of creative outcomes from prior bubbles: - The typewriter became a durable technology. - Amazon (which bought Webvan) and other firms enabled fast grocery delivery despite Webvan’s bankruptcy after burning more than $800 million. - Facebook profited from targeted advertising—the principle AllAdvantage attempted. - Author’s assessment: It is too early to say whether crypto assets will have a lasting transformative impact; signs are promising but most bubbles are ultimately destructive of value, wealth, and trust in institutions. ### Key statistics and figures (verbatim) - Block.one has raised more than $1.5 billion since July 2017. - ICOs raised $6.5 billion in 2017. - ICOs raised more than $4 billion in the first quarter of 2018. - Some crypto exchanges allow investors to borrow as much as 100 times the cash balance in their accounts. - Bitcoin price reached almost $20,000 in the last two months of 2017. - Since 2011, hackers have stolen almost 1 million Bitcoins (worth over $9 billion in early May). - At their peak, all crypto assets combined were worth less than 1 percent of global GDP. - At the height of the dot-com mania, tech stocks were valued at close to a third of global GDP. - Webvan burned through more than $800 million in investors’ money. - Facebook made a $16 billion profit in 2017. *Source: F&D Magazine — A Short History of Crypto Euphoria, Andreas Adriano, June 2018.* --- ## Content in this bundle - **Crypto Bubble? An Historical Analysis of Financial Crises - IMF F&D Magazine** - [Crypto Bubble? An Historical Analysis of Financial Crises - IMF F&D Magazine (Markdown version)](/-/media/files/publications/fandd/article/2018/june/adriano.pdf.md){rel="alternate" type="text/markdown"} - [Crypto Bubble? An Historical Analysis of Financial Crises - IMF F&D Magazine (PDF)](/-/media/files/publications/fandd/article/2018/june/adriano.pdf){rel="external" type="application/pdf"} - **نبذة تاريخية قصيرة عن فورة الأصول المشفرة** - [نبذة تاريخية قصيرة عن فورة الأصول المشفرة (Markdown version)](/-/media/files/publications/fandd/article/2018/june/ar/adriano.pdf.md){rel="alternate" type="text/markdown"} - [نبذة تاريخية قصيرة عن فورة الأصول المشفرة (PDF)](/-/media/files/publications/fandd/article/2018/june/ar/adriano.pdf){rel="external" type="application/pdf"} - **Breve historia de la criptoeuforia ● El dinero se transforma ● Finanzas y Desarrollo ● Junio de 2018** - [Breve historia de la criptoeuforia ● El dinero se transforma ● Finanzas y Desarrollo ● Junio de 2018 (Markdown version)](/-/media/files/publications/fandd/article/2018/june/es/adriano.pdf.md){rel="alternate" type="text/markdown"} - [Breve historia de la criptoeuforia ● El dinero se transforma ● Finanzas y Desarrollo ● Junio de 2018 (PDF)](/-/media/files/publications/fandd/article/2018/june/es/adriano.pdf){rel="external" type="application/pdf"} - **Brève histoire de l’euphorie cryptographique** - [Brève histoire de l’euphorie cryptographique (Markdown version)](/-/media/files/publications/fandd/article/2018/june/fr/adriano.pdf.md){rel="alternate" type="text/markdown"} - [Brève histoire de l’euphorie cryptographique (PDF)](/-/media/files/publications/fandd/article/2018/june/fr/adriano.pdf){rel="external" type="application/pdf"} - **Краткая история криптоэйфории– Финансы и развитие – июнь 2018 года** - [Краткая история криптоэйфории– Финансы и развитие – июнь 2018 года (Markdown version)](/-/media/files/publications/fandd/article/2018/june/ru/adriano.pdf.md){rel="alternate" type="text/markdown"} - [Краткая история криптоэйфории– Финансы и развитие – июнь 2018 года (PDF)](/-/media/files/publications/fandd/article/2018/june/ru/adriano.pdf){rel="external" type="application/pdf"} - **加密热潮简史 - 金融与发展** - [加密热潮简史 - 金融与发展 (Markdown version)](/-/media/files/publications/fandd/article/2018/june/zh/adriano.pdf.md){rel="alternate" type="text/markdown"} - [加密热潮简史 - 金融与发展 (PDF)](/-/media/files/publications/fandd/article/2018/june/zh/adriano.pdf){rel="external" type="application/pdf"} --- _Source: https://www.imf.org/en/publications/fandd/issues/2018/06/crypto-bubble-historical-analysis-of-financial-crises-adriano_