“Experts” are trying to scare retail investors, and it doesn’t benefit anyone.
If I got a dollar for every time I heard that we were in a bubble… yes, you know how the rest of that saying goes. There are more people than ever taking personal responsibility for their finances and getting involved in the stock market, it should be something to uplift, not condemn. There is constant talk about an upcoming crash coming, and while that might be true, nobody actually knows.
There is a record amount of millennials getting involved in the stock market, and the investments of millennials differ from the standard investments made by baby boomers. So, while the speculations are at all-time highs along with stocks, it is not a surprise with millennials preferring investing in long-term disruptive trends such as Bitcoin while baby boomers prefer physical gold. The differences are multiple, baby-boomers prefer to invest in hedge funds and mutual funds, whereas millennials prefer self-directed investments. I guess you can see the pattern here, with speculative assets at all-time highs, it is no surprise with millennials getting more involved in the stock market and real estate market.
That’s why there is no surprise to see baby boomers dismissing disruptive technology like Blockchain, but we should know by now that disruptive technology tends to win.
There is a power shift happening
People have understood that we as a collective have more power than we ever thought was possible. If we go back to 2008, the trust was lost entirely in Central Banks, and there was a general thought it had to be changed. Because, how could you actually completely trust someone you barely know with your life savings knowing that they have to have their own interest in mind as well. That was the main thing that was going on with the r/wallstreebets crowd, people are taking responsibilities instead of putting all of their trust in institutions. This is something that doesn’t seem to have been understood, this was a prime example of the power of a crowd. People will make mistakes, but best believe that they will learn as well.
The fundamental idea behind this is similar to the idea within the Bitcoin community. It is a community that starts from the ground up and not from the top down with a centralized authority. When the awkward clunkiness of Bitcoin disappears, that is when the next step will be taken, and adaptation will be easier. Nonetheless, the r/wallstreetbets community provided the crypto community with validation in their beliefs, we tend to forget that the world lives under unstable capital regimes.
Why is the crypto market flying if we are not in a bubble?
I am not saying that we are not in a bubble, but the surge in crypto assets such as Bitcoin and Ethereum is not driven by retail investors. It is driven by institutions that are beginning to see the value in an asset class such as crypto, which is the best performing asset class by far. This week we saw a major company like Tesla invest 1.5 billion dollars into Bitcoin and expect to accept it as a payment, although we weren’t really surprised with Elon Musk being a supporter of Bitcoin after the Robinhood incident. When the richest man in the world, who has built self landing rockets is investing in this, then people should take notice. Funnily enough, the people that invested in an S&P 500 index fund now indirectly hold Bitcoin due to Tesla being in the S&P 500, so congrats, people. Also, the digital asset manager Grayscale poured money into Ethereum, but not to the same extent as Tesla did into Bitcoin.
The interest in this asset class is just going to keep increasing with time, even though there would be a crash or not. As soon as Bitcoin reaches 1 trillion in market cap, there are going to be institutions and regulators pouring in because they will see that there is real money to be made there. Currently, it sits at over 800 billion in market cap, so there is a little more to go before the milestone is breached.
Metcalfe’s law is in play like it was in the 2000s
For the people that are not familiar with Metcalfe’s Law, it simply states that the value of a network is proportional to the square number of nodes in the network. To clarify, the more the projects get adopted and grow in the cryptocurrency space, the more valuable they will become. This is similar to the dot-com bubble in 1999.
Take companies like Amazon and Facebook into consideration here, everybody said that these companies were in a bubble when the price of the stocks was soaring until people understood that these stocks were network adoption stocks. Metcalfe’s Law is in play now as new people are entering the stock market, which then leads to no surprise that the prices are reaching the levels they currently are at. I also mentioned earlier that millennials prefer self-directed investments and have taken a liking to disruptive trends like Bitcoin. People are always looking for the best bets in an unclear world, and right now, there are a lot of people putting their bets on Bitcoin and Ethereum, among others.
We’re at the beginning of blockchain, and to provide you with some perspective, it almost took 20 years before bandwidth became available and cheap enough for everyone so that we can have streaming like we have today. We have barely scratched the surface with transactional blockchain, so we definitely still have a long way to go. Think back to the dot-com bubble in 1999 when there were a lot of companies that went extinct and didn’t work, and then we had the ones that survived and made amazing gains. There will most likely be a similar thing happening in the crypto space, which is why you see a lot of people placing their bets on that. Because some people are going to come out rich after all of this is over.
Also, most people that are involved in Bitcoin were well aware that there would be a bull market coming up this year. Bitcoin tends to operate in 4-year cycles, and the Bitcoin halving usually serves as a major catalyst for the Bitcoin Bull market. We are going through this right now, and we will most likely go through this again in 2025, which will be even less of a surprise to crypto investors. There is a reason why so many crypto investors had a fundamental conviction of positioning themselves last year while being ridiculed by others. It paid off now, and it will pay off before the bull market in 2025 as well.
What about the ESG market?
There is a focus on the crypto space as a bubble, but what about the ESG market? Because we are well aware that regulations are pushing more and more people towards this as well and it is encouraged to invest in this area because it is for the benefit of the planet.
We are also aware that the regulations have mainly been related to Europe so far, but with Biden being ESG friendly, it is only a matter of time before it reaches the U.S as well. More stimulus will most likely be put into this area and isn’t this something that could fuel a bubble, or it is something that has a productive use of capital that will actually change the society forever. We all hope that it is the second option and that it can change society forever, so I believe you can understand the point I am making.
Lastly, I want to clarify that even though I am a finance professional, this is not financial advice, and this article is only meant to bring light to the current market situation. I advise everybody to do their own research, I only want to help you to find what you are looking for.