Crypto is Nothing but Financial Euphoria
Photo by André François McKenzie
Our age is awash in speculative nonsense. From the rise and fall of NFTs to the pervasive promises of cryptocurrencies, our economic future seems more controlled by a roll of the dice rather than by providing goods and services people actually need.
Even heads of state are getting into the crypto space, as exemplified by President Donald Trump and Argentina’s President Javier Milei. Trump’s meme coin, called “$Trump”, was launched to the public mere days before his inauguration in January and followed the typical trajectory of these highly-volatile assets. As Reuters reported, $Trump “quickly surged, reaching a peak of over $14.5 billion in overall market value by Jan. 19, the day before his inauguration. It has since slumped by two-thirds.” In market parlance, this is known as a “rug pull,” where a new crypto product launches, quickly gains value, and bottoms out almost immediately. The only people who make out well in this scenario are the top investors, who pocket a ton of money. Everyone else, from aspiring crypto-bros to Trump fans putting in their life savings, usually lose money. It’s typical of Trump, who had to settle a lawsuit regarding defrauded students of his “Trump University” days before taking office in 2017, to pull off another swindle just before taking office in 2025.
Javier Milei, the bombastic, chainsaw-wielding libertarian gadfly elected to Argentina’s presidency in 2023, has just pulled off a crypto scam of his own. He promoted another cryptocurrency, $Libra, on his X/Twitter account, bolstering it in the eyes of the public who rushed in to buy it as its value rose. Like with $Trump, this was another rug pull, where $Libra lost nearly all its value only hours after Milei posted about it and the small investors lost nearly everything. As Cruz Bonlarron Martínez wrote in Jacobin, “the creators of the currency pulled their investments — around $100 million was withdrawn in total — resulting in multimillion-dollar profits for insiders and the sudden evaporation of the savings of some of Milei’s most ardent supporters.” There have now been calls for Milei’s impeachment by his opposition.
While it would be easy to say this is all new, a consequence of the internet’s revolutionizing effect on capitalism, history shows that speculative booms and bust are a recurrent, endemic part of the economy. This is especially true for items that provide little “use-value,” as Marx referred to it in Capital. Cryptocurrencies are overwhelmingly purchased as a speculative asset rather than a means of exchange in the United States. Only 4.4% of crypto users actually use it to purchase other things, with 92.6% keeping it as a speculative asset, Business Insider noted. Crypto is nothing more than another permutation in a centuries’ long metamorphosis of financial bullshit.
In A Short History of Financial Euphoria, the influential Harvard economist John Kenneth Galbraith chronicled how such speculative schemes—largely based on nothing—go back centuries, even before the emergence of capitalism as the dominant mode of production. He rightly points out how people’s trust in a conman often comes from the implicit assumption that a person with wealth (or at least the appearance of wealth) is necessarily intelligent and knows what they’re doing. The additional assumption that plagues our economic system is the promise of novelty, that a swindler’s conceit is predicated on doing something no one has ever done before. Both of these assumptions are categorically false, as Galbraith shows in his brief account of money mania.
In the 1630s, the “tulip mania” that swept Europe saw the flowers being valued for tens of thousands of dollars, on the assumption that their value would always go up. “The rush to invest engulfed the whole of Holland,” Galbraith noted, “no person of minimal sensitivity of mind felt that they could be left behind.” At the peak of the frenzy, Tulip bulbs were traded multiple times in a day, seeing an increase in value with nearly every transaction. However, the bottom fell out in 1637, with many losing their money as well as their self-respect.
Nearly a century later, the supposed financial wizardry of John Law and his “Banque Royale,” where he bilked investors by selling them futures in fabricated gold deposits. When the money he’d raised went not to finding said gold but merely paying off French debts, he set up what we’d called years later a “Ponzi scheme,” paying off old investors with new investors’ money. When the euphoria ended by 1720, there was a furious run on the bank, with 15 people being crushed to death attempting to enter the bank and retrieve their money. Law escaped the authorities and lived the rest of his life in poverty.
American capitalism has routinely collapsed due to financial speculation, as the panics of 1837, 1873, and 1907 demonstrate. In 1837, the collapse happened largely as a result of the end of the Second Bank of the United States, which turned the country’s banking system into a free-for-all (thanks, Andrew Jackson). In 1873, Jay Cooke’s overleveraged railroad empire collapsed, taking the entire American economy down with it. The Panic of 1907, caused by another round of euphoria by Wall Street, subsided, in part, from financier J. P. Morgan’s rallying of liquidity after the Trust Company of America nearly collapsed.
However, the most influential financial crash in the history of the United States happened in 1929, causing the Great Depression. Caused in part by the real estate bubble of the 1920s (some of which was centered in Florida, where Charles Ponzi created the original “Ponzi scheme”), the crash was mostly caused by investors buying stocks “on call,” meaning that they only put up a small amount of money and had the rest covered by debt. The debt accumulation was predicated on the idea that the stocks would continually grow in value, thus negating the debt in the first place. When the euphoria subsided and a margin call was asked on these stocks, people were unable to pay, causing a cascading effect on the financial system. It culminated in “Black Tuesday,” October 29, 1929, what Galbraith called “the most devastating day in the history of the [New York Stock] Exchange.” Millions of dollars of assets were wiped out in hours.
As a result of the speculative mania of the 1920s and the resulting crash, Herbert Hoover was thrown out of the White House and a new era of financial restraint reigned. President Franklin Delano Roosevelt instituted the New Deal, providing millions with relief during the Great Depression. He also ensured the passage of many new pieces of financial regulation, including the creation of the Federal Deposit Insurance Corporation (to insure bank deposits), the Securities and Exchange Commission (to curb reckless financial speculation), and the Glass-Steagall Act, which separated investment banking from commercial banking. American capitalism became a tightly controlled system, with the public and investment firms making steady bets over a period of 40-plus years.
It wasn’t until the 1980s, with Neoliberalism ascendant, that financial speculation took off again. The deregulation frenzy that occurred under the Presidency of Ronald Reagan unleashed financial institutions from the shackles of the New Deal and the post-WWII economic order. It seemed inconceivable that a financial bubble would happen again—but sure enough, it did. On October 19, 1987, the New York Stock Exchange saw the steepest drop in value since the Great Depression, caused again by an overleveraged market, this time in mergers and acquisitions and the rise of so-called “junk bonds.” The latter were a risky financial product that came with a high-interest rate, meaning investors were ebullient in the good times and abysmal in the bad. While the economy recovered rather quickly after the crash, it nevertheless provided a portent for things to come.
The only unfortunate thing about Galbraith’s excellent little history of financial bubbles is that it was published in 1990. In the last 35 years, we’ve seen multiple financial crashes, such as the Dot-com Bubble at the turn of the century, the Great Recession of 2007-2009, and the COVID crash of 2020, the ramifications of which we’re still living through. Each one of these crashes had a central element that connected them: the power players weren’t ready to deal with a market suddenly crashing due to a fragile, inflated assets.
During the Dot-com Bubble, any jabroni could build a website, claim that he’s building a revolutionary “e-commerce” business, and take in money from unsuspecting investors. When the bubble burst, it nearly took all the credit market with it. The Great Recession was largely a response to the crash of the US housing market, which had been pumped up through subprime mortgages and ninja loans (no income, no job, no assets). With the COVID crash, an externality (a pandemic) threw the global economy into a tailspin, with central bankers and Congress approving trillions of pump-priming to ensure it wouldn’t go completely off a cliff.
And who were the losers in all of this? The working and middle classes. The Dot-com Bubble took the savings of many small inventors who were participating in the stock market for the first time. The Great Recession ejected millions out of their homes and jobs while the banks were bailed out by Washington. The COVID crash had the potential to lock in some social democratic gains, such as the eviction moratorium, the expanded childhood tax credit, and stimulus checks, but all of those gains have been reversed. This system doesn’t hold the swindler’s to account, unless they screwed over rich people, as the cases of Elizabeth Holmes and Sam Bankman-Fried illustrate.
Like so many bubbles before it, today’s crypto craze is another form of speculative mania that has experienced all the highs and lows of an unregulated market. It’s no surprise that the likes of Trump and Milei, perennial swindlers par excellence, have glommed onto it like a sea urchin to the ocean floor. It’s an easy con, egged on by the promise of easy money—a tale as old as time. As Galbraith notes in the conclusion to his book, “Fools, as it has long been said, are indeed separated, soon or eventually, from their money. So, alas, are those who, responding to a general mood of optimism, are captured by a sense of their own financial acumen. Thus it has been for centuries; thus in the long future it will also be.” And this is an age of fools.
Justin Clark is a public historian based in Indiana and the co-host of Red Reviews. A specialist in intellectual history and digital history, his writing has appeared on the Indiana Historical Bureau’s Untold Indiana blog and in The Sower and the Seer: Perspectives on the Intellectual History of the American Midwest.
