The truth behind big bubbles and crashes
When Katherine Hunt’s dad asked her whether or not he should invest in Bitcoin, alarm bells rang, first she thought “he’s a musician”. Hunt is a lecturer in accounting at the Griffith Business School, and as someone who knows the five stages of a bubble and crash, she was worried when it seemed everyone was thinking they needed to “get in on” Bitcoin. “The stock market is a manifestation of the psychology of everyone who is investing, so of course there is going to be these crazy stages,” Hunt says. There is a boom, as momentum behind a new stock or asset speeds up and the media starts to cover it, fuelling its price rise. Then the euphoria sets in, the value of the asset skyrockets and people start to make a profit. But looming around the corner is the panic. Investors feel the last phase of a crash far more than they do the elation of the price rising, Hunt says. Panic breeds more panic and the price falls. Hunt is seeing this pattern play out with the stocks of the more well known gig economy businesses like Airbnb and Uber. These businesses now enjoy the privilege of being the only, or one of a few of their kind, in the marketplace. But Hunt says this can’t last. “In an open market that’s not the case at all, there’s always going to be competition and these companies will fall. It’s just probably that they’ll fall in 30 or 40 years, not necessarily tomorrow,” she says. Of course this is all easier to see in hindsight. Remembering the global financial crisis John Crosby, now a senior lecturer in finance at the University of Technology Sydney, was once working as an investment banker at Lloyds of London in 2007 when he […]
