FOMO, pessimism and the need to catch the next hot thing
The lowest-priced, stainless-steel version of the Cosmograph Daytona, the Rolex model that Paul Newman made famous, carries a suggested retail price of $14,550. But you’re unlikely to snag one so cheap. A current-model Daytona sells for more than $40,000 on the secondary market.
It’s not just prices for high-end watches that soared during the pandemic. For a wide range of collectible goods — among them fine art, classic cars, luxury handbags, sneakers, comic books and trading cards — the last few years were bubblier than a bottle of Dom Pérignon (whose prices for certain vintages have also shot up). Then there’s the market for houses, an admittedly more practical scarce good, where prices also rose to intolerable new heights in recent years.
I’ve been thinking about these asset bubbles a lot lately, especially as I’ve been following the crash of Bitcoin, Ethereum, NFTs and the larger cryptocurrency industry that grew so hot during the pandemic. Proponents of DeFi — crypto jargon for “decentralized finance,” which essentially seeks to replicate the financial services industry with crypto-based systems — argue that the technology will expand access to financial products and unleash a wave of innovation now hampered by the overlords of traditional finance, what they derisively call TradFi.
But it’s fast becoming clear that crypto was just another collectible pumped up by the same forces inflating the market for Yeezys and Birkin bags — a lot of money sloshing around the world, not a lot of obvious places to put it, and a fear of missing out on something that everyone else seemed to think would be hot.
Just as a Rolex does not tell time any better than a regular wristwatch — in fact, electronic watches are far more accurate than mechanical ones — DeFi seems to do nothing better than TradFi, and in a lot of practical ways it’s worse.
So why did so many invest? Because FOMO is a hell of a drug. Because when prices are shooting up and you feel the fear of missing out, you can talk yourself into imagining intrinsic value in anything.
A mechanical wristwatch is a marvel of miniature engineering, almost a piece of art in its intricate complexity. Or: An algorithmic stablecoin is a marvel of fintech engineering, a way of replicating old-fashioned banks and payment networks on the blockchain to create an open financial infrastructure.
Wait, what? No, I don’t know what that means either — but look how cool it is! And, more important, look how cool other people think it is!
The wrinkle in my analogy, of course, is that the sort of hotshot who can drop 40 grand on a Rollie probably isn’t going to feel much of a hit if Daytonas suddenly become uncool. (In fact, resale prices of Rolexes and other luxury wristwatches have been falling in the last couple of months.
The sneaker resale market is also softening.)
Crypto, on the other hand, was pitched to everyone, rich and poor. On social media, on financial TV networks and on celebstudded Super Bowl ads, these complex, volatile, crash-prone, unregulated financial products were sold to the masses as can’tmiss opportunities.
“Fortune favors the brave,” Matt Damon promised. Larry David starred in an ad whose tagline invoked FOMO explicitly: “Don’t miss out on crypto.”
Crypto was also just the latest in a string of unsustainable asset bubbles that have rocked American life over the last two decades. At the turn of the century, people were trying to make it big investing in money-losing dot-coms.
The mid- to late 2000s was dominated by the housing boom that led to the Great Recession. And since 2010, we’ve had a series of boom-and-bust cycles in crypto; before this latest run-up, Bitcoin rose and fell in 2011, then from 2013 to 2015, and then again from 2017 to 2018.
I’ve seen much schadenfreude online recently — lots of people who sat out the crypto boom mocking those who went all-in, which is perhaps only fair after years of crypto bros telling skeptics to “have fun staying poor.”
But can you blame them? Surveys suggest that people under 40 have been much more willing than older people to put their money into crypto. This makes sense when you consider that much of their adult lives has been dominated by these boom-bust cycles and persistently low growth in real wages.
For millions of people, crypto, like real estate and dot-coms before it, offered a way out of what has otherwise been a dead-end economy. They were simply trying to get ahead in just about the only way one can these days: Put your money into something hot and hope it goes big. It’s the American way.