As discussed in this earlier posting, here is a chunk of Frisby, from his book Bitcoin: The Future of Money? (pp. 197-201 – the chunk entitled “Beware the hype cycle").  And for the reasons stated in that earlier posting, this posting might rather suddenly disappear, so if you feel inclined to read it, do so now.  And then when you have, buy the book and tell me that you have done this in the comments, because this might cheer up any passing authors or publishers:

There is a cycle that a new technology passes through as it goes from conception to widespread adoption. The research company Gartner has dubbed it the ‘hype cycle’. It has five phases: the technology trigger, the peak of inflated expectations, the trough of disappointment, the slope of enlightenment and the plateau of productivity.

In the first phase the new technology is invented. There is research and development and some early investment is found. The first products are brought to market. They are expensive and will need a lot of improvement, but they find some early users. The technology clearly has something special about it and people start getting excited. This is the ‘technology trigger’. The internet in the early 1990s is a good example.

As this excitement grows, we move into the second phase.  The media start talking about this amazing new technology.  Speculative money piles in. All sorts of new companies spring up to operate in this new sector. Many of them are just chasing hot money and have no real product to offer.  They are sometimes fraudulent. This new technology is going to change the world. The possibilities are endless. We’re going to cure diseases. We’re going to solve energy problems.  We’re going to build houses on the moon. This is the ‘peak of inflated expectations’. This was the internet in 2000.

But at some point, the needle of reality punctures the bubble of expectation, and we move into the third phase.  Actually, this technology might not be quite as good as we thought it was; it’s going to take a lot of work to get it right and to make it succeed on a commercial scale.  A great deal of not particularly rewarding hard work, time and investment lies ahead.  Forget the ideas men – now we need the water-carriers.  Suddenly, the excitement has gone.

Negative press starts to creep in. Now there are more sellers than buyers. Investment is harder to come by. Many companies start going bust. People are losing money. The hype cycle has reversed and we have descended into the ‘trough of disappointment.’ This was the internet between 2000 and 2003.

But now that the hot money has left, we can move into phase four. The incompetent or fraudulent companies have died. The sector has been purged. Most of those that remain are serious players. Investors now demand better practice and the survivors deliver it. They release the second and third generation products, and they work quite well. More and more people start to use the technology and it is finally finding mainstream adoption. This was the internet in 2004. It climbed the ‘Slope of Enlightenment’, the fourth phase of the hype cycle, and entered the ‘Plateau of Productivity’ - phase five - which is where the likes of Google, Amazon and eBay are today.

Of course, cycles like this are arbitrary.  Reality is never quite so simple.  But it’s easy to make the case that crypto-currencies in late 2013 reached a ‘peak of inflated expectations’.

Perhaps it was not the.  It wasn’t Bitcoin’s dotcom 2000 moment – just a peak on a larger journey up.  Many Bitcoin companies, for example, are not even listed on the stock market.  Greater manias could lie ahead.

But it’s also easy to make the case that it ws the peak of inflated expectations.  In the space of three or four years, Bitcoin went from an understated mention on an obscure mailing list to declarations that it was not only going to become the preferred money system of the world, but also the usurper of the existing world order.  At $1,000 a coin, some early adopters had made a million times their original investment. Speculators marvelled at the colossal amount of money they were making. The media were crazy for it. Bitcoin was discussed all over television.

It caught the imagination of the left, the right and the in-between.  Computer boffins marvelled at the impossibly resilient code. Economists and libertarians marvelled at the politics of a money without government or border. There were early adopters, from the tech savvy to the black markets (black markets are usually quick to embrace new technology - pornography was the first business sector to actually make money on the internet, for example).

Every Tom, Dick and Harry you met under the age of 30 with an interest in IT was involved in some Bircoin start-up or other.  Either that or he was designing some new alt currency - some altcoins were rising at over a thousand per cent per day.  ‘Banks, governments, they’re irrelevant now,’ these upstarts declared.

I suggest that in late 2013 we hit the peak of the hype cycle - the peak of inflated expectations.  Now Bitcoin is somewhere in the ‘trough of disillusionment,’ just like the internet in 2001. The price has fallen. There have been thefts. Some of the companies involved have gone bankrupt.

The challenge now is for all those start-ups to make their product or service work. They have to take Bitcoin from a great idea and a technology that works to something with much wider ‘real world’ use. They have to find investment and get more and more people to start using the coins. This is a long process.

There are many who will disagree with this interpretation.  And, with investment, it is dangerous to have rigid opinions – I reserve the right to change my mind as events unfold.