Chapter 6Cryptocurrency Spreads

During December of 2017, Bitcoin prices shot up to $20,000, increasing 30‐fold from the beginning of the year. This triggered rumors of Bitcoin mania possibly surpassing tulip mania, spreading across the World Wide Web with a mixture of fear and excitement.

Bitcoin's 100% price surge over the first three weeks of December agitated regulators in Asia Pacific, since Japan and Vietnam together accounted for 80% of Bitcoin trading activity. Japan's central bank chief described it as “deadly.”

The central bank chiefs of the United States and Australia and the Turkish deputy prime minister were a bit more diplomatic, characterizing the surge as “highly speculative.” The central bank chiefs of the United Arab Emirates and Saudi Arabia ignored it and instead kept their focus on testing a new digital currency built on blockchain technology for use in cross‐border payments. Regulators in Venezuela, Zimbabwe, and Nigeria welcomed it as a savior for their highly dysfunctional economies.

The diverse reactions of investors and regulators to Bitcoin's price spike were irreconcilable.

Behavioral Economics

This phenomenon was best explained by 2017 Nobel Prize winner economist Richard H. Thaler,1 who, by integrating economics with psychology, explored the impact of limited rationality, social preferences, and lack of self‐control on individual economic decision‐making. During his cameo appearance in the Oscar‐winning credit crisis movie The Big Short (2015)—sitting ...

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