It's time to declare that things have gotten a little crazy in the crypto currency world. I'm not talking about the massive price rises in Bitcoin or Ethereum.
They pale in comparison with some of the other coin offerings which have made some people billionaires in literally months!
It has all the hallmarks of an unsustainable mania. The problem with manias is they tend to last longer than many think.
Human psychology tends to work similarly in every bubble.
The early adopters are labelled 'crazy'. The second round investors are the trend followers who see a change happening and want to ride the wave. The third wave are those who see the hype and while initially resisting, eventually capitulate to get some of the action.
They suffer from FOMO ( fear of missing out)
These are the final buyers and they create the bubble top. As fewer buyers emerge, the selling starts and the trend followers get out while the early adopters have been cashing in all the way up.
Those left holding the baby (or coins in this case) see the value of their investments smashed and they vow 'never again'. They mean it too, until the next time!
It happens with every investment class but it is particularly apparent this time in crypto currency bets.
One, Dogecoin started as a joke. Even the name suggests it's a Dodgy Coin.
But what started as a joke has now minted billionaires.
There is no limit to the number of Dogecoins that can be generated and it was based on an internet meme. It now has a market capitalisation of more than $50 billion.
A single coin has moved in price from a fraction of a fraction of a cent on May last year to more than 50 cents today. It's simply crazy.
You could have turned a $10,000 punt into more than $1 billion during the coronavirus alone.
As I said, it is just crazy.
However, the crazy masks the unstoppable move towards digital currency. I see them as the future but what coins will survive and which ones won't is a total guess.
At some point governments will seek to stop the migration from fiat currency into unregulated crypto. Turkey and China have already taken steps in that direction. There are whispers America is set to follow suit.
If that happens then the next big crash in crypto will likely eventuate. I'll see that as a buying opportunity...but I certainly won't be buying Dogecoin!
Cory Bernardi is the author of seven books and has been a member of the Australian rowing team, a publican, an investment portfolio manager and spent nearly 14 years as an Australian Senator.
