What you need to know about financial bubbles and manias
Throughout history there have been numerous speculative economic bubbles and manias. Some were relatively isolated events which held limited or no broad economic ramifications, while others resulted in a full-blown financial crisis or marked the end of important eras.
In more recent times, flash-crashes have become another unusual but very different type of short-term threat to the marketplace as an unintended consequence of rapidly growing dependence on technology and algorithmic trading.
What are Market Bubbles and Manias?
Bubbles and manias have been around as long as financial markets have, and for as long as human nature remains the same these episodes of severe market dislocations will continue to develop and unravel as they have in the past. Over and over.
The first recorded market bubble – the Tulip mania – dates all the way back to 1636-1637, and yet after nearly 400 years we find ourselves today amidst the deflating of the Bitcoin[1] bubble that reached its crest in December 2017. Of all the historical bubbles, only Bitcoin[2]’s final blow-off stage rivaled that of the one seen during the Tulip craze, and in total from the beginning to the end only the Bitcoin bubble has exceeded it.
Indeed, a perfect example of how human nature in the marketplace remains unchanged despite all the advances in technology and availability of education and information to market participants. The asset type and reason behind the spectacular rise and fall are different, but the irrational behavior of market participants is nearly identical.
The Tulip and Bitcoin bubbles are two of the more unusual occurrences given
