What is mania? It is defined as a mental illness characterized by great excitement, euphoria, delusion, and overactivity. When investing, it turns into investment decisions that are driven by fear and greed without being restrained by the analysis of risk and reward outcomes, cause or balance. Mania usually goes hand in hand with product business development, but timing can sometimes be crooked.
The Technology.com boom of the late 1990s and today’s cryptocurrency boom are two examples of how mania works in real time. This article will highlight these two events at each stage.
The first stage of mania begins with a big idea. The idea is not yet known to many, but the potential for profit is great. This is usually translated as unlimited profit, because “nothing like this has happened before.” The Internet was one such case. People who use the paper systems of the time ask, “How can the Internet replace such a familiar and entrenched system?” as they were skeptical. The backbone of the idea begins to build. It turned into modems, servers, software, and websites needed to turn the idea into something real. Investments in the idea phase start poorly and are made by “knowing” people. In this case, it could be visionaries and people working on the project.
In the world of cryptocurrency, the same question is asked: How can a piece of cryptocurrency replace our monetary system, contract system and payment systems?
The first websites were rude, limited, slow and annoying. Skeptics look at the words “information superhighway” spoken by far-sighted people and ask, “Can this really be so useful?” The forgotten element here is that ideas start at worst and then turn into something better and better. This is sometimes due to better technology, larger scale and lower costs, better applications for the product in question, or more familiarity with the product combined with excellent marketing. On the investment side, early receivers enter, but there is still no euphoria and no astronomical returns. In some cases, the investment brought in a decent return, but not enough to attract the masses. This is similar to the slow internet connections of the 1990s, the failure of websites, or incorrect information in search engines. In the cryptocurrency world, this is accompanied by high mining costs for coins, slow transaction times, and account hacking or theft.
Word is starting to get that it’s a hot new thing on the internet and “.com”. Products and feel are built, but due to the massive scale involved, the cost and time would be huge before anyone could use it. As markets compromise business potential with the price of investment, the investment aspect of the equation begins to move forward with business development. Euphoria begins to take place, but only among those who accept it early. This is happening with the explosion of new “altcoins” in the cryptocurrency world and the large media space acquired by the space.
At this stage, the parabolic revenues and potential offered by the internet are predominant. Not much attention is paid to the application or the problem, because “the income is great and I do not want to miss.” The words “irrational excitement” and “mania” become commonplace as people buy out of greed. Negative risks and negatives and mostly ignored. Symptoms of mania include: Any company blushing in the name of var.com, analysis is thrown out the window in favor of optics, investment knowledge is becoming less noticeable among newcomers, there are 10 or 100 bagger income expectations. the general public and few people really know how the product works or not. This resulted in a perfect increase in the cryptocurrency world in late 2017 and an increase in the company’s shares by hundreds of percentage points using a “blockchain” in their name. There are also “reverse takeover offers” in which the names of listed but active shell companies are changed to something related to the blockchain and the shares are suddenly actively sold.
Accident and Burning
The business scene for a new product is changing, but not so quickly as the investment scene changes. Eventually, a shift in mindset occurs and a major sales frenzy begins. Variability is massive, and many “weak hands” have been removed from the market. Suddenly, re-analysis is used to justify that these companies have no value or are “overvalued.” Fear is spreading and prices are accelerating downwards. Companies that are not profitable and survive with hyperbole and future prospects are blown up. Growing scams and frauds to exploit greed are on the rise, leading to more fear and the sale of securities. Businesses with money are quietly investing in new products, but unless the profits are convincingly demonstrated, the pace of progress slows down because the new product is an “ugly word.” This is beginning to happen in the cryptocurrency world with higher incidence of folding lending schemes using cryptocurrencies and stealing coins. Some marginal coins lose value due to their speculative nature.
At this stage, the investment landscape is fraught with losses and bad experiences. In the meantime, a great idea is beginning to be felt, and for businesses that use it, it’s a boom. Begins to be applied in daily activities. The product is becoming standard, and visionaries say the “information superhighway” is real. The average user feels that the product has improved, and he begins mass adoption. Businesses with a real profit strategy get hit in the crash and burn phase, but if they have the money to survive, they move on to the next wave. This has not yet happened in the world of cryptocurrency. The expected survivors are those with a financial job claim and corporate support – but it remains to be seen which companies and coins they will be.
The Next Wave – Business is in full swing
At this stage, the new product is standard and the profit is obvious. Business is now more about profit and scale than the idea. This appears to be a second wave of investment, starting with survivors and extending to mania at another early stage. The next stage is characterized by social media companies, search engines and online shopping, which are derivatives of the whole original product – the Internet.
Manias works on a model that plays in a similar way over time. After recognizing the stages and the thought process in each, it becomes easier to understand what is happening and investment decisions become clearer.