One of the few men to get out in time before the Wall Street crash of 1929 did so – legend has it – because he was offered a stock tip by the boy who shined his shoes. He immediately sold all his holdings. If the mania for gambling on the stock market had reached down to the children on the streets, the bubble must have been due to pop at any moment. The corresponding moment for the cryptocurrency bubble will only be discernible in retrospect, but we have some pretty strong candidates already. The endorsement of one project by the reality TV star Paris Hilton has already happened. Posters have appeared on the London underground urging people to gamble in bitcoin futures on the margin. The production – or “mining” – of bitcoins now uses more electricity than Ireland or Nigeria.
Meanwhile, the notional price of the main cryptocurrencies continues to shoot upwards in a way that makes nonsense of the idea that they have any value as a medium of exchange. Even if they were widely accepted by legal merchants, it would at the moment be lunatic to exchange them for anything but real money. Bitcoin itself is trading at more than $8,000, more than 10 times its price a year ago, and more than double what it was three months ago. Since it is only widely used as a currency in drug deals or for ransom payments, there is either a huge boom in criminal activities outside the world of cryptocurrencies, or one within unregulated exchanges where these tokens are traded.
There are many cryptocurrency schemes which are sold on the same grounds as the greatest South Sea Bubble prospectus: “For carrying on an undertaking of great advantage, but nobody to know what it is.” But there is one novel element in today’s lunacy, and this is the apocalyptic hope common in Silicon Valley that it is possible to replace all messy human institutions with clean and infallible computer code. The blockchain technology underlying the various cryptocurrencies is meant to make human decisions redundant and to replace faith in governments with indisputable rationality. The delusion that this might be possible has produced one of the most astonishing outbursts of irrational exuberance in financial history. When this bubble bursts, it will be clear that so long as there is greed we will need laws to tame it.