What can we learn about the Crypto Economy from the Great Depression, the Dot Com Bubble, and the Subprime Mortgage Crisis?

Ronil Bhattarai
5 min readFeb 24, 2022


Those who don’t learn from history are doomed to repeat it. Even though I was alive during the dot com bubble, I was too young to understand what the world was going through. As I grew older, the subprime mortgage crisis had a financial consequence that my family had to face, and at that point in my life, I was able to comprehend a lot more about the economy. Recently, I was wondering what led to the Great Depression and during my research, I found many similarities in all the manias in history.

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Ideally, it’s the government’s responsibility to get out of the way in a free-market economy and let the market take its course. However, in reality, there needs to be some regulation to protect the general interest of society. Imagine having no environmental or safety regulations in airplanes or automobiles. In most of the manias in history, deregulation or lack of regulation has been one of the primary reasons. The roaring twenties were fueled by weak regulations. A lot of regulations didn’t exist back then. Most of the modern market regulations were established after the crash. Similarly, the subprime mortgage crisis was a result of deregulations years earlier and the failure of the government to implement the required regulations. During the dot com bubble, lack of regulation for internet companies led to investments in dot com companies. In today’s economy, I am able to draw parallels as we can definitely see that globally there have been massive gaps, loopholes, and overall lack of regulations when it comes to crypto assets.

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Usually, people tend to invest or speculate when interest rates are low and confidence in the market is strong. During all the major manias in history, we can see that cheap credit was funneled to the market. In the roaring twenties, we got to see buy now and pay later plans for the first time which found its way to the stock market which led to over levering by the general public. I am sure most of you have watched The Big Short. Banks in the 2000s were giving out home loans left, right, and center. Even during the dot com bubble, the capital gains tax was reduced which added air to the bubble. Currently, due to the pandemic, we can find ourselves in a similar situation where interest rates are lower and a lot of cash floating in the market as the government came up with several relief packages all over the world. Most millennials and gen z invested in crypto-assets with their stimulus checks.

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Making money requires money as capital is one of the factors of production in the economy. However, capital needs to be channeled to productive sectors of the economy. We need capital for setting up a business, operations, or even buying shares in a business. In most cases, capital adds value to raw materials or provides a valuable service to the economy. Any capital invested in an unproductive sector or overvalued asset is not adding any value. We can see this in all the manias mentioned above. Making money is not easy. It requires investing that money and adding value to the economy. If it were as easy then everyone ought to be rich. Imagine if everyone in the world started investing in art. Yes, art is valuable. It has been a great way of storing and growing wealth but the “art mania” sucks the capital out to productive sectors like manufacturing, hospitality, healthcare, agriculture, etc. Most rich art collectors have only a fraction of their wealth tied up in unproductive assets like art and gold. Even though blockchain technology has many avenues to impact society and add value, the market today seems to be soaring due to the overvaluation of nonproductive crypto assets which just end up consuming capital and electricity that could have been used in more productive industries.

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During the roaring twenties, even a shoemaker on Broadway was speculating in the market. Imagine a baker during the tulip mania making more money flipping tulip than baking bread. Even while growing up in the mid-2000s, every adult I knew was flipping real estate to make a quick buck. I am not saying white- or blue-collar workers should not invest to grow their wealth but a person who does not know how to read a balance sheet and cash flow statements should not be speculating in stocks. Instead, the person should invest in index funds as they lack the relevant knowledge and work on building the knowledge. We, humans, tend to compare ourselves with our peers. If everyone around you is making easy money on some dot com company with no revenue, your FOMO will kick in. Most crypto investors are in the market because their peers are investing.

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You might be quick to call me a crypto skeptic but I honestly believe in blockchain technology. Blockchain can help society become more efficient and add enormous value to the economy just like what the internet did. We are in the era of Web3.0 and there will be many more revolutionary products in the near future but most of the crypto assets are just not adding any value other than fuel mass hysteria. The blockchain technology NFT will definitely add value to the economy but seems to be overvalued. What I would say is that we should invest in blockchain technology that can add value to the economy with realistic valuation. Governments across the world should come up with relevant regulations to protect the interest of the public. If you think you are an entrepreneur, think about how you can use this technology to solve problems and not flip some coin, token, or NFT because that’s what entrepreneurs do. They solve problems in society that add value.

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Ronil Bhattarai

Science. Technology. Economics. Finance. Investing. Passionate about building products using technology. https://twitter.com/phish_curry