Introduction
2021 was truly a crazy year. In retrospect, it was a pocket of time surrounded by calamities of disease and war. However, if you were in it, it was a very different kind of crazy. Every day in the beginning was filled with news of hope and resilience. Covid was over, but governments worldwide were giving away money to people and businesses. Stimulus and zero-interest loans meant plenty of money to go around. We saw someone or the other get rich every day with some scheme or the other and it was never from 30 years of diligent investing and saving. It was always from some cryptocurrency or a Pokemon card that 1000xed in value.
The Age Of Speculation
The numbers also support this, while the traditional markets of stocks, bonds and real estate were also fueled by this stimulus money as even the broad indices like Nifty50 and S&P500 grew nearly 30% each. What was unexpected and made 2021 crazier was the rise and mass acceptance and embrace of alternative markets for commodities and securities. Everything from collectable commodities like sneakers, watches and high fashion goods to investments into land in the metaverse was touted as the best investment you could make to completely change your life.
Legacy markets like second-hand luxury watches, which usually grow around 15-30% every year grew 60% in size in 2021. Brand new markets like the metaverse or the NFT markets also garnered hundreds of millions of dollars in investment.
These trends can be explained as a result of increased money flow into the economy which was then spent on goods that people wouldn’t have bought otherwise. However most of the items purchased weren’t for use, but rather as investments to try to beat the returns of the traditional markets. I would like to present three contributing factors to this phenomenon, other than the increased money supply.
Not Just Veblen Goods
In simple terms, Veblen goods are goods whose demand increases as their price increases, defying conventional economics. This happens mainly in the luxury goods sector as most of those goods are exclusive, limited in number and hold significant social status. These include watches/timepieces, Luxury footwear like limited edition sneakers, and purses/handbags from luxury brands like Hermes and so on. These goods are primarily purchased as a status symbol and worn to project the same, however, there has always been a second-hand market for these goods as with many of these goods, the sellers would take advantage of their access to these goods and charge a premium for that access on the second-hand market, for eg, someone who is invited to buy an exclusive Hermes handbag or an exclusive new release of a patek phillipe that most people don’t, and then sells them through dealers to people who weren’t. The second-hand market has always existed but what was peculiar about 2021 was the unprecedented growth in this market as people weren’t buying these goods for the status, rather they were buying them to make a profit, so what then can explain this bump?
The Greater Fool Theory
The Greater Fool theory suggests that the price of overvalued commodities/securities increases because “fools” buy them hoping to sell them to “greater fools” later down the line. This leads to an artificially inflated price of goods and stocks that have nothing to do with their utility or fundamentals respectively and eventually leads to the formation of a bubble where even more people dump money into already overvalued stocks due to a fear of missing out on the gains. All of this does lead to unrealistic profits but only to a certain point until the eventual correction. This was one of the defining things about 2021, “the everything bubble”, this combination of the greater fool theory and FOMO explains the increase in investments into and artificial inflation of fringe alternate markets like the second-hand market, the NFT market or the metaverse real estate markets as more and more investors wanted to make outsized returns on investments which they wouldn’t have made in traditional markets. This I know is haunting my crypto bros, at the least, it sounds familiar, 2021 and since has been a time when people’s appetite for risk has constantly been increasing, and people who were risk averse also started investing in more risky investments like options and IPOs, trying to get rich as quick as possible. Therein lies the last piece of the puzzle to make the picture clear.
Price Chart Of DogeCoin
Get Rich Or Die Trying
For a decade we’ve been constantly hearing stories of the wealth wiped out of the great financial crisis, the corporations of the world taking control of your life, the increase in polarization of people, the increase in sea levels and the constant threat of nuclear-armed war. All of this is being exacerbated by social media has led to an increasing feeling in the people of my generation to despise the past, disassociate with the present and disillusionment from the future. These constant reminders of uncertainties combined with the increasing gap in wealth and income inequality, and the eroding faith of people in institutions and other people all came to a boiling point as we all thought that the time of gloom had come in the form of a global pandemic. During this time, however, for several reasons, the wealthy elite of the came out of the pandemic without a scratch, some even richer than they were. This contributed to a feeling in people that acquiring wealth and doing it quickly is the only way to escape not the mundane hassle of everyday life but also to be secure about the future and their place in it. If I remember the the other defining trend of 2021 was the popularization of the hustle culture and the FIRE movement, the idea of working as hard as possible while you can to make enough to quit the rat race while you can still live your life without worrying about any calamity. In my opinion, this was the leading cause of the everything bubble. The hopeless cry, of the working class over the unequal and unjust world that they found themselves in, of the youth over depleting natural resources and entering a world more polarizing and dividing.
What’s next then
While the years that followed did do some justice to the rich as massive crypto scams and bottomless spending pits of “new age startups” wiped away billions from careless billionaires and institutions, the worldwide increase in inflation and consequent increase in interest rates meant the party was over for large corporations who fueled their growth over the pandemic with free money. This however also has been coupled with the massive failure of the world to come together over any issue, increasing unemployment and wars breaking out around the world have been fueling the same uncertainty and fear. While the notorious crypto market has been cleaned out and is now on a steady incline, vindicating crypto fundamentalists, as the space is now free of unnecessary attention and enthusiasts working on new and genuine use cases, new unregulated technology is about to take hold of the general pop culture and going to start a new gold rush in the form of artificial intelligence. We are already seeing this as people realise AI can increase their productivity and make their “grind” more profitable, be it content creation or services. We the students of NITK however, find ourselves in a unique spot where we are equipped to make those AI tools, so my advice…
Believe me, if 2021 was the rise of unregulated crypto, 2024 will be the widespread rise of unregulated AI, so pull out your laptops and code up any AI service you can think of, upload it to the ChatGPT plugin library and start selling shovels to unwitting dreamers!
~ Pranav Chikkond , Third Year – Department of Civil Engineering