At the turn of the twentieth century, Jesse Livermore wrote a book titled “Reminiscences of a Stock Operator.” It’s about his life as a trader. One of the things he said back in 1900 was this:
“When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators to-day differ from yesterday. The game does not change and neither does human nature.”
And he also wrote: “I used to think that people were more gullible in the l860’s and ’70’s than in the 1900’s. But I was sure to read in the newspapers that very day or the next something about the latest Ponzi or the bust-up of some bucketing broker and about the millions of sucker money gone to join the silent majority of vanished savings.”
Doesn’t this sound familiar? It does to me. It’s pretty much what people are writing about the cryptocurrency market. It’s a bubble, it’s a Ponzi scheme, it’s another boom and bust.
But the most important point he makes is this: that the game doesn’t change and neither does human nature.
The derivatives market provides us with a good example of the sameness between what is happening in crypto now and markets of the past. A derivative is “an arrangement or product (such as a future, option, or warrant) whose value derives from and is dependent on the value of an underlying asset, such as a commodity, currency, or security.” Derivatives trading has been around since ancient Mesopotamia. For example, a tablet from 1809 BC documents a Mesopotamian merchant borrowing silver, promising to replay it with sesame seeds “according to the going rate” after six months.
The Briitish South Sea Company of 1711 led to a wave of new joint-stock companies with dubious business plans that created one of the first bubbles, alongside the Dutch tulip fever.
What emerged from this was the realisation that derivatives, and now the crypto market, need governance and regulation. Self-policing must be encouraged, and work in tandem with government-enforced rules. Bad actors must be kicked out of the market, just as they were in early days of the London Stock Exchange.