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Nov 18, 2022

This Isn’t a Parachute Pants Moment

By:Dylan Ratigan

Arguably, the most important step on the way to success is failure. Yes, that sounds counterintuitive, but it’s really not. Evolution and progress are only possible when you reach a point of failure, make changes and then try again. It’s true whether we’re talking about human evolution, missions to the Moon, creating the greatest grilled cheese sandwich or anything else worthwhile. It is especially true in financial markets.

The first stock market crash can be traced back to March of 1792. It came after the United States over-expanded credit creation which led to a speculative bubble and eventual market crash. That crash was followed up by crashes in 1819, 1837, 1857, 1884, 1893, 1896, 1901, 1907, 1929, 1962, 1987, 2000, 2008 and most recently 2020. That’s fourteen crashes, not counting flash crashes. Yet today, the stock market has a notional value of nearly $46 trillion. That’s trillion with a “T”.

From time to time, markets crash. They’re painful when they happen. They’re frightening. Invariably, there is panic and doomsayers quick to proclaim the end of free markets. However, each time markets crash, they recover. They fix what was wrong and led to the crash. Sure, they might find new ways to make new mistakes, but the point is they evolve.

Right now, crypto is undergoing what is probably its first significant crash. It was precipitated by a combination of concentrated power in an arrogant and inexperienced guy who made bad decisions in an unregulated space. In other words, it was only a matter of time. The aftermath has been a loss of $32 billion dollars for customers of FTX. The value of crypto assets has been decimated with bitcoin down 22% in November. But it’s not the end of crypto.

What crypto will ultimately become is anyone’s guess. A similar sentiment was popular in the early 1990s when we first started hearing about this thing called the internet. And like the internet, technological innovation, while fast, isn’t overnight. Who remembers Prodigy? How many of us are still using AOL CDs with unused free hours of internet time as retro coasters for drinks? When was the last time you asked Jeeves anything?

The point here is, development takes time. Sometimes we’re too shortsighted to recognize the potential revolutionary effects a new development or invention might have. Admittedly, other times we’re too eager to jump on the bandwagon of what will only be a fad, like parachute pants. But simply because the process gets ugly doesn’t mean the journey is over. And in this particular case, it’s tough to see betting against crypto as being a smart bet.

Special Projects writer Josh Fabian contributed to this article.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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