In the last several weeks, we’ve seen an enormous amount of chatter about market valuations. The Dow hit a record 26,000 points the other day, only two weeks after hitting a previous record of 25,000. Bitcoin traded above $20,000 not long ago, then crashed to somewhere less than half of that, and has since partially recovered. If you work anywhere remotely connected to the tech industry, you’ve probably heard a lot about all of this. It’s impossible not to notice the large amounts of money sloshing around out there.
I started writing a post about Bitcoin, and cryptocurrencies, but then realized that what I was really talking about was the weaknesses humans have for risk. The pernicious thing about bubbles – whether in the stock market, or cryptocurrency or elsewhere – is that they create a lot of overnight geniuses out of early speculators. They also spawn a class of Explainers, who shape and evangelize a bullish narrative out of every bubble with a clear logical conclusion: to invest, now. You see this happening on CNBC every single day, as well as in the legion of private “crypto” chat groups popping up all over the place.
But first, indulge me in a little story about craps.