I've been thinking a lot about why seemingly bad ideas--like the umpteenth random Bitcoin treasury company--keep taking off in our industry. This whole thing is starting to give me ICO/NFT/Terra vibes, but keeps on truckin'. I think the answer has to do with the power of plausibility, and ultimately, some of the blame falls on Bitcoin itself, for being highly plausible yet a smash success. Here's the full explanation of why I think that, along with prominent historical examples. ... I’ve been wondering why this phenomenon of “at-best dubious ideas taking off” keeps happening in crypto, as it did with the ICO craze, NFT mania, Terra Luna, and now Bitcoin treasury companies. I think it has something to do with the power of controversial ideas that are at least somewhat plausible. Here’s the exact cycle as I see it: First, a project based on a wild idea that may just work is launched. That veneer of plausibility, however thin, feeds the idea in its infancy, sustaining it long enough for it to gain traction. Next, success attracts attention and capital. The more momentum the idea picks up, the more plausible it seems. The true believers become emboldened, and the skeptics silenced. Then the idea turns into a mania. By now there are few naysayers left, so the believers declare an emphatic victory. But eventually the idea collapses, proving that it was implausible all along. We saw this phenomenon during the ICO craze, when what began as a brilliant new fundraising mechanism eventually turned into “any token issued for any reason will have value, so best to invest early.” That thesis was tested, for a while affirmed, then proved disastrous. By the time the bubble burst, almost every ICO was just a disingenuous money grab or outright scam. As it turns out, the very ease with which anyone can issue a token makes almost every token worthless. And yet, we saw the same phenomenon play out during the NFT mania a few years later, when the notion that “blockchains ensure digital scarcity, so let’s issue an ungodly amount of collectibles” was hyped then humiliated. As it turns out, the digital scarcity of ownership (nobody can take my NFT) was easily overwhelmed by the abundance of issuance (anyone can create a similar one). We saw a similar cycle in the Terra Luna boom, when the idea that “an algorithmic stablecoin backed purely by circular logic” was taken to a $50b extreme, then proved farcical. As it turns out, a bank whose only asset is its own equity is just a really bad bank. We are now seeing the same cycle with crypto treasury companies. Yes, Microstrategy pioneered something novel, particularly in the absence of quality NFTs. And yes, there are certain tax and investment mandate benefits to putting coins in companies (though notably, there are added risks). But does that mean the 100th copycat to do this is creating lasting value and should be rewarded for it with a higher share price? Hell no. In all the cycles listed above, the greatest amount of skepticism was expressed in either the early stages of the boom or after the whole thing has collapsed. You didn’t hear as much during the acceleration phase for the simple reason that the supposedly bad idea kept working, longer than the critics had predicted it would. Case in point: MicroStrategy was criticized by a lot of people two years ago, before the stock appreciated by 700%, outperforming Bitcoin. Also in each example, the Johnny-come-lately grifters almost entirely crowded out the more genuine early believers. They were aided by the fact that outsiders couldn’t tell the difference. There is usually also a group of people who sort of kind of know the idea is dumb, but go along with it anyway, because it’s fun, or good for adoption, or personally profitable. Importantly, the collapse of these manias means that most people end up losing money. But they still keep happening. My best guess as to why is Bitcoin. Today, society generally understands Bitcoin as a unique asset with desirable properties. But that wasn’t the case for most of its history. Bitcoin was also highly implausible when it first launched. Before Bitcoin, there had never been a non-sovereign and non-commodity type of money that stood the test of time. There also hadn’t been a distributed system that was both permissionless and secure. That both problems could be solved by a confusing mishmash of cryptography and game theory was highly unlikely. That’s why so many people refused to believe that it could ever work. But it did, spectacularly so. And in time, a multi-trillion dollar ecosystem popped up around it, pushing the boundaries of what was previously thought possible even further. Bitcoin is a huge fucking deal, and it’s clearly not going anywhere. That success keeps churning out new generations of believers (or dreamers?) in other implausible ideas. So does that mean we should give every implausible idea the benefit of the doubt? I don’t think so! Bitcoin didn’t challenge any of the core principles of economics or finance. It simply expanded our understanding of how they could come together. Crowdfunding and digital scarcity are clearly useful, and I still love ICOs and NFTs. Stablecoins using a more sensible design will take over the world. Even MicroStrategy provides some value to certain institutional investors. Indeed, using basic first principles of finance, I recently proposed a way of making treasury companies genuinely useful. Alas, most of what is being launched today isn’t that. But the premiums bestowed by the equity markets on all of them persists, because the veil of plausibility breached by MicroStrategy is now being given the self-sustaining mania treatment. It will work until it doesn’t, and when it fails, the fact that it would will seem obvious. But in crypto we only learn the hard way.