Mania Update
Short-term memory loss and greater fools.
I thought the current mania was worth commenting on. But first, I think it’s worth touching on Nietzsche and the idea that time is a flat circle, which is the pop culture, more poetic way of expressing the idea of eternal recurrence. If we live in a universe with infinite time but only a finite number of events that can occur, then events will repeat themselves over and over again. We are seeing that happen right now in financial markets. I expect to be a curmudgeonly old man one day. It’s already feeling repetitive, and I’m only 34.
Now I wrote more in depth about Crypto in September:
There is a lot of information in my post from September about the history of Bitcoin and how crypto works. When the market surged after Trump’s election, I sold off the small amount of crypto that I had. Once it crashes, I’ll buy a small amount of Solana, Chainlink, and maybe Filecoin again. Now, allow me to paraphrase a line from The Big Short: If our bet is against dumb money, shouldn’t it be worthwhile to see just how dumb that money is? Also, at the very end of this, in the interest of fairness, I’ll make the best pro-Bitcoin case I can.
Whenever I search for videos on why I should buy Bitcoin on YouTube, this guy always comes up. He also appears often on the Bitcoin subreddit, and he has 3.7 million followers on X. The video has over 400,000 views in five months. It’s clear that, if the Bitcoin faithful have a champion, this is the guy:
Now, who is this clown exactly? Well, he’s the former CEO and current Executive Chairman of MicroStrategy, an otherwise completely unremarkable tech company that often loses money and has a very inconsistent amount of cash from operations. However, people are going crazy for the stock because the company started hoarding Bitcoin, amassing a collection of around 402,100 Bitcoins worth about $38.2 billion at the time of this writing. So, when this guy talks, remember he has a large interest in pumping up the price of Bitcoin as much as he can.
The first thing that stuck out to me in this video is that they introduced him as “the man who never sells.”
It’s a very long 40-minute video, and I suffered through the whole thing, waiting for him to make a point with some kind of substance. It is very eerie how closely this guy mimics religious sermons. But rather than discussing the finer points of the Bible, he’s talking about a digital token with the same degree of zeal.
“Bitcoin won’t protect you if you don’t wear armor.”
“You need to buy the Bitcoin and control the Bitcoin.”
“Bitcoin is the one thing in the universe that you can truly own.”
“Everyone gets Bitcoin at the price they deserve. The decision to buy Bitcoin is an act of humility. It’s when you can overcome your fear, your uncertainty, your doubt. It’s a moment of clarity and courage….”
See what I mean? It’s very, very strange how much listening to him feels like sitting in church. Bitcoin is very much a faith, and the behavior of the token won’t make sense until you understand that, along with the Greater Fool Theory.
The Greater Fool Theory suggests that the price of an asset is determined not by its intrinsic value but by the belief that someone else will pay a higher price for it in the future. People with this mindset buy overvalued assets, expecting to sell them at a profit despite their inflated prices. The cycle continues until there are no "greater fools" left willing to buy at higher prices, causing the asset's value to collapse. Unlike a business that generates cash flow, Bitcoin just sits there doing nothing. If nobody expected it to go up, it wouldn’t. A corporation, on the other hand, can return its profits to you. There is a mechanism for the investor to profit no matter what anyone else thinks. That does not exist for Bitcoin—it is the definition of the Greater Fool Theory.
The forces at work with crypto are a mixture of Econ 101 and Psych 101. Bitcoin is a limited item; the more people buy it, the more it goes up, and the faster it goes up. People point to the rising chart as proof that they were correct. It’s a self-fulfilling prophecy. The cryptocurrencies with legitimate real-world uses, such as Solana, Chainlink, and Filecoin, are best understood as decentralized computer networks that run programs. The more these networks are adopted for real-world use and the traffic on their networks increases, the more the demand for the tokens will rise, giving you a valuation based on something real—not religious fervor and hoarding behavior. Again, my crypto post goes into much more depth about this. Also, reviewing the meme stocks will help us understand the forces at work, since the Bitcoin crowd and the meme stock crowd are often the same people.
Now lets look at some charts:
Bitcoin since 2017 with its first huge mania in late 2017:
GameStop (GME) since Roaring Kitty started pumping it:
But wait… there was another meme stock along with GameStop…. Oh right! AMC! How did that do?
Note when its says -89.19% it is not referring to its all time high, it is referring to where it started at the beginning of the chart. Here is the chart starting at the peak:
AMC is the cautionary tale for buying into a narrative, not fact. It is the perfect example of what breaks people’s brains in financial markets and gets at the heart of the hodl mindset. If everyone buys and never sells, the price of any asset can remain inflated forever—or, more accurately, until the story encouraging everyone to do this dies. Unlike GameStop and Bitcoin, AMC has already had this moment: the moment where the story collapses. A lot of people lost a lot of money buying stock in AMC during the frenzy. But these people seem to disappear from the internet, and you never hear their stories. What is blasted from the rooftops are the proclamations of victory from the people involved in the current mania.
Although, I would say the people who lost money are the lucky ones. They might have learned their lesson, and many have likely stopped doing this sort of thing. The people I truly feel bad for are the ones who rode AMC mania to its peak and sold, particularly those who convinced themselves that they weren’t gambling. They had their faulty logic and thinking reinforced and will carry it forward with them into a future demise.
Now let’s take a closer look at Bitcoin:
This chart shows how purely narrative-based this Bitcoin rally has been. The chart starts in June 2022, which was a somewhat random starting point, but I wanted to show what Bitcoin was doing before the release of ChatGPT. Bitcoin had been trading at a significant loss since June 2022 and only recovered to its prior high toward the end of 2023.
Let’s zoom in:
It’s pretty clear that Bitcoin surged in tandem with the release of ChatGPT, along with the entire stock market as a whole. In the case of the stock market, those gains were driven by tech companies profiting from the rise of AI. Bitcoin, however, has virtually nothing to do with AI. There is no logical reason why the rise of Bitcoin should be closely correlated with the release of ChatGPT, and yet it is. ChatGPT was released in late November 2022, and by early 2023, Bitcoin was roaring once more.
What about Trump’s election?
Well, it’s gained 43% since November 5th. This is pure narrative and a religious belief in Bitcoin driving the rally. Neither of these two catalysts for the price increase have much of anything to do with cryptocurrency. This is why I sold the crypto that I had. I buy digital tokens based on the logical hypothesis of the growing use of the Solana, Chainlink, and, to a lesser extent, Filecoin networks. When there is a huge surge in price that is not correlated with an increase in legitimate network traffic, I sell because I know it’s a speculative mania and wait for it to come crashing back down to earth—which is what speculative manias always do and what Bitcoin has always done.
Now the same is also true for GameStop:
GameStop is up 26.36% since Trump got elected, compared to the 4.48% gain of the overall stock market. What exactly Donald Trump has to do with a failing video game retailer? I have no clue. But the Bitcoin faithful and the GameStop faithful are mostly the same group of people—the same group that fueled the rise and fall of AMC’s share price. GameStop was heading the same way as AMC and didn’t get a bump from the ChatGPT release like Bitcoin did. The initial surge in its share price in 2024 was due to the return of Roaring Kitty. He posted one meme of himself sitting up in a chair after not posting a single thing for years, and the share price exploded.
Now, we can get an idea of how far Bitcoin will fall by, you guessed it, studying the charts. In keeping with the Greater Fool Theory, eventually, there are no more greater fools willing to buy. The price increase flattens, and people start to cash out, sending the asset price crashing back to the ground. The true believers never will. After every crash, it stands to reason that those who remain are the true believers. Since Bitcoin has crashed multiple times, we can get an idea of where the floor is.
If you look back at Bitcoin’s price chart, it had peaks in 2018, April 2021, and November 9, 2021. Now, the April crash had a quick rebound, so I’m going to focus on the peaks in 2018 and November 2021, when all the "normal" people took their money and went home.
2018 crash that formally started on December 17th, 2017:
November 8th, 2021 peak:
The first time around, in 2018, Bitcoin had a crash of 78% and stayed down for two years until the next mania came around, which coincided with the start of the COVID-19 pandemic. Every Bitcoin mania correlates with a world event that is entirely unrelated to Bitcoin itself. Now, correlation isn’t causation, but this should get everyone’s attention and strongly suggests that, yes, Bitcoin is little more than a means for people to gamble. Again, with the peak on November 8, 2021, we saw a crash of 73.71%, and Bitcoin didn’t recover to its former peak until about March 2024 again that rise was brought to you by ChatGPT. Then Bitcoin started to drop again but was catapulted back up by the election of Donald Trump. I have to keep repeating myself here: nothing logical ever pushes Bitcoin higher.
The only Bitcoin mania that doesn’t have a clear cause was the mania of 2017. However, I attribute that to Bitcoin entering the awareness of the average person for the first time.
If history serves as any lesson, expect a massive crash to come as the gamblers start to cash out of the casino. The Bitcoin true believers, as always, will remain behind and provide a floor for the drop in Bitcoin’s price, likely somewhere between -70% and -80% from the previous high. The only unanswered question I have about Bitcoin is when it will finally end. When will the story completely collapse, and Bitcoin go the way of AMC’s share price? Maybe the gambling will never stop. If you do buy Bitcoin, have the clarity to see it for what it is—gambling—and sell high.
Now, all that being said, let me provide a bull case for Bitcoin. As much as it pains me, I must be objective. My bias here is clear: I don’t dislike crypto, but I intensely dislike Bitcoin. However, there is a fixed amount of Bitcoin. The only legitimate upward pressure I can think of on the price of Bitcoin would be when people lose access to their digital wallets. That’s the upside and downside of crypto—it is very secure, but if you lose your access, the Bitcoin in your wallet enters purgatory and will never move again.
Lost Bitcoin could serve to reduce the supply over time, thus driving the price up, but I don’t think enough of that is happening to make much of a bull case for Bitcoin. Also, most examples I’ve heard of someone losing access to their digital wallet come from the early days of crypto. I don’t think that happens much anymore. However, if someone could show it was happening frequently, that would be a very important data point.
Anyway, I don’t recommend Bitcoin. It has these crazy meteoric rises, and if you want to put money into it on the premise of being a gambler, then go for it—I have nothing against gambling. But Bitcoin draws my consternation when people think of it as an investment. Speculation and investment are two different things, and I am willing to die on that hill. I will always tell you if I am speculating.
My Portfolio:
FI, ADP, MCD, AFL, AXR, VLO, ITB, PPA
METC $17 Call 6/20/2025
*Disclaimer*
You can and will lose money in the stock market. You can lose all of your money. I can and will be wrong. I have been wrong in the past. I have lost money in the past. Investing in stocks is risky and should never be considered safe. Invest at your own risk.