When asked what he thought of cryptocurrency while giving a lecture at a military academy, Harvard finance professor Mihir A. Desai reacted by polling his youthful audience to discover how many of them had traded questionable financial assets.
“I was stunned,” he recalled in his latest essay, published Monday in the New York Times. “How could this population of young people come to spend time and energy in this way?”
There is no single answer to this question, although Desai makes several observations. For one thing, he sees cryptocurrencies as a manifestation of economic “magical thinking” that has “infected capitalism,” which he describes simply as “the assumption that favored conditions will continue on forever without regard for history.”
The Desai argument originated as a result of the 2008 financial crisis and subsequent recession. Disappointment, shattered faith in economic institutions, and general disappointment all contributed to a “receptivity to radical economic solutions.”
That’s where the type of frantic belief in crypto promoted by larger-than-life tech entrepreneurs comes in. Many regard them as thrilling outsiders who bring new ideas, offering to democratize the creation of personal riches among an entrenched status quo that had so drastically failed the world not long ago.
“The end of magical thinking is upon us as cryptocurrencies and valuations are collapsing—aand that is good news,” he writes. “Hopefully, a revitalization of that great American tradition of pragmatism will follow.”
Perhaps crypto merely made the error of exposing our economic systems’ underlying speculative volatility too openly and without the usual corporate etiquette. However, it does not appear that crypto has died and gone forever. Bitcoin has stabilized at more than $21,000 for the first time since November, when the large cryptocurrency exchange FTX crashed and disintegrated catastrophically. Nobody knows for sure what will happen next.