– Cryptocurrencies are a manifestation of a magical thinking born out of a financial crisis.
– There were mistakes and mediocrities made during a period of declining and zero-interest rates, and these were obscured or forgiven.
– Hawkers are pitching new vehicles and new ways of taking companies public without the usual regulatory scrutiny, promising greater returns while dismissing greater risks.
The global financial crisis of the late 2000s and early 2010s was a period of economic hardship that left many people feeling frustrated and helpless. It’s no surprise that some of these people have turned to cryptocurrencies as a way to take control of their finances and access the tools of modern finance. In his opinion piece for The New York Times, Mihir A. Desai, a professor at Harvard Business School and Harvard Law School, looks at this phenomenon and calls it “magical thinking.”
Desai argues that the rise of cryptocurrencies is a response to the mistakes and mediocrities of the financial crisis, which were obscured or forgiven while speculative assets with low probabilities of success inflated in value enormously. He refers to these assets as “shiny new vehicles” such as stablecoins and new ways of taking companies public without the usual regulatory scrutiny, which are being sold with the promise of greater returns while ignoring the greater risks.
Desai warns that this magical thinking may be misguided and that investors need to exercise caution and understand the risks involved in investing in cryptocurrencies. He also acknowledges that while it may not be intentional, the financial crisis is ever-present and the cracks in the system persist. He concludes by saying that those new investors need to understand the perverse world they were born into, and not just nurse a grudge against capitalism.
It’s clear that the rise of cryptocurrencies is an indication of the desire for greater control over one’s finances, as well as a search for an alternative to traditional financial systems. While there are risks involved, it’s important to recognize the potential for cryptocurrency to disrupt the current system and provide an alternative to those who may have been left out of the traditional economy. The key is to be well-informed and to understand the risks involved.