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Google Gemini: What lessons should I learn about crypto from Charles Mackay’s “Extraordinary Popular Delusions and the Madness of Crowds”?

Charles Mackay’s “Extraordinary Popular Delusions and the Madness of Crowds” is a classic work that, despite being published in 1841, offers timeless lessons for understanding speculative bubbles, including those seen in the cryptocurrency market. The book’s core message is about the human tendency to abandon reason and follow the crowd in pursuit of quick riches, leading to irrational exuberance and eventual collapse.

Here are key lessons from the book that apply directly to crypto:

• The Power of Herd Mentality (FOMO and FUD): Mackay vividly illustrates how individuals, even otherwise rational ones, can be swept up in a collective frenzy. The tulip mania, Mississippi Scheme, and South Sea Bubble all demonstrate how people lose their individual judgment and simply follow what everyone else is doing. In crypto, this manifests as “Fear of Missing Out” (FOMO) during bull runs, where people buy assets at inflated prices simply because they see others getting rich, and “Fear, Uncertainty, and Doubt” (FUD) during downturns, leading to panic selling. Social media and online communities amplify these emotions significantly in the crypto space.
• Speculation Over Intrinsic Value: Mackay shows how manias often begin with a genuinely innovative or desirable product (like tulips, or in crypto’s case, blockchain technology). However, as the hype builds, the focus shifts entirely from the underlying value or utility of the asset to pure speculation on price appreciation. People buy not because they believe in the long-term potential or use case, but because they expect to sell to a “greater fool” at an even higher price. This was evident in the rapid rise of certain cryptocurrencies or NFTs with little to no actual utility, whose value was driven almost entirely by collective belief and hype.
• The Allure of Quick Riches: The book highlights the irresistible temptation of easy wealth, which overrides caution and critical thinking. Mackay details how people from all walks of life invested their life savings, and even borrowed heavily, in speculative ventures, convinced they couldn’t lose. The crypto market, with its stories of overnight millionaires, similarly attracts individuals seeking rapid returns, often leading them to take on excessive risk.
• The Cycle of Bubbles: Mackay’s historical accounts demonstrate a consistent pattern: a period of quiet beginnings, followed by growing interest, then a frenzied speculative phase (the “mania”), and finally, an inevitable crash and widespread financial ruin for many. This boom-and-bust cycle has been a recurring feature in the crypto market, with numerous tokens experiencing meteoric rises and dramatic crashes.
• The Danger of Unquestioning Belief: In the manias Mackay describes, people stopped asking critical questions about the true worth or sustainability of the investment. They were too caught up in the excitement and the narratives being propagated. In crypto, this can be seen when investors disregard fundamental analysis, project whitepapers, or warnings from experienced financial professionals, instead relying on social media trends, influencer endorsements, or unsubstantiated claims.
• The Role of Scams and Fraud: Mackay’s book also touches on the prevalence of fraudulent schemes that emerge during periods of mass delusion, preying on people’s greed and irrationality. The crypto space has unfortunately been rife with various scams, “rug pulls,” and dubious projects, which thrive in environments where due diligence is often neglected in favor of quick profits.

While blockchain technology itself may be revolutionary and have real-world applications, Mackay’s work serves as a potent reminder that the human psychology driving speculative markets remains largely unchanged across centuries. The key lesson for crypto investors is to exercise extreme caution, conduct thorough research, resist the urge to follow the crowd, and prioritize long-term value and utility over short-term speculative gains.