Hedge fund manager Bill Miller recently stated that bubbles are necessary to bring capital into innovative markets. This made me think of one of the most interesting concepts in investing and how it applies to crypto.

Reflexivity refers to the circular relationships of cause and effect and the

feedback loops they create. Within this context, ideas and beliefs can literally be willed into existence by persistent commitment to them. An example of this would be Amazon stock and how the belief that the company would be successful has helped shape that reality. As people believed Amazon would be successful the stock price rose. This meant Amazon was able to receive cheaper financing and attract top talent, which in turn allowed the company to grow even more quickly. In this sense, success builds upon itself and creates a self fulfilling prophecy.

This is easily translated to crypto when considering the system of incentives that drive the ecosystem. As prices rise, miners make more money. Because mining is more lucrative, more people mine, increasing the value (security) of the network. This increase in value eventually translates to higher prices, which again lead to more mining and value added to the system. Crypto is beautiful in this way, with each part increasing the strength of the others.