History Doesn’t Repeat – But It Sure As Hell Rhymes

Financial history is littered with bubbles. Each time, the details change, but the underlying human behaviors of greed, speculation, and overconfidence remain the same. Today, as investors ride the wave of innovation and speculation in cryptocurrency markets, it’s worth asking: Are we seeing echoes of 2008?

The 2008 Crisis: When Fake Assets Created Real Havoc

The 2008 financial crisis didn’t happen overnight. It grew from years of deregulation and financial engineering: 

After the repeal of Glass-Steagall in 1999, banks began behaving like investment houses. The traditional neighborhood banker, who once carefully considered loan risks, was replaced by institutions packaging mortgages into a security called a collateralized mortgage obligation (CMO) for sale on global markets. Previously, banks would make loans and worry that borrowers wouldn't pay them back, so they would have a very thorough, rigorous review process. Once these loans could be turned into a security and sold, the default of a borrower would no longer become their problem. Then came the phrase "No credit, no sufficient income, no problem, we don't care if you pay it back."

Lenders didn't care about defaults, but what about the purchasers of these securities? There should have been hesitation in buyers purchasing these CMO securities. The methodology for evaluating these securities became more complex and clouded, which made the public not really understand what they were purchasing. The fancy breakdown of subprime loans into tranches, showing who gets paid first and who gets paid last in the case of default, created a perception of lower risk. Suddenly, a security could be rated A or higher, even though the payers of these mortgages had a high probability of default, called subprime. Still, Banks have stringent credit quality requirements that protect them from overindulging in these securities.

Enter the insurance companies, including AIG and others, that offer a product called credit default swaps (CDS), insurance on these mortgage securities. So now a bank could buy a highly rated CMO and buy insurance on it from an A-rated insurer. This provided banks with the safeguards they needed to load up their balance sheets with these securities in pursuit of higher yields rather than the extra boring U.S. Treasuries.

There was one major problem: the insurance that banks and many others purchased, Credit Default Swaps (CDS) was not real. The “insurance” was undercapitalized. Some firms had as little as ten cents on the dollar to cover potential losses. This meant that companies could insure billions of dollars of loans even though they had almost no available capital to pay if the loans went bad. This was a great deal for the insurance companies, which collected millions of dollars in premiums on money they never had in case a payout was needed.  A common belief was, Why would anyone need extra cash on hand if housing prices kept rising? The foreclosure on the home would pay everyone back.

The system looked stable—until housing prices fell. Homeowners defaulted, CMOs plummeted in value, and CDS providers like AIG couldn’t honor their commitments. The result? A systemic collapse that required unprecedented government bailouts. Many people were outraged by the bailout of companies like AIG, but the reality is that they had insured close to a quarter of the market. If AIG had not been bailed out, a quarter of the banking industry would have been wiped out immediately, triggering a domino effect that would have ended most, if not all, of the banking industry.

In short, fake assets—underfunded insurance on bad loans—, created real wealth on the way up and real destruction on the way down. Once the CMOs were created, banking returns went from low single-digit returns to high double-digit returns, and the attraction made this a must-have worldwide sugar rush. The CMOs were backed by many unworthy (Subprime)borrowers, but the faulty math and logic didn't matter since the CMOs were insured by CDS. This amplified the pre-2008 sugar rush. Some of these insurers had close to the highest rating, AA! The credit default swap issuers were collecting large premium payments on a promise they could never deliver on.  On top of that, many analysts had a complicated explanation of the notes they insured, but no one truly understood them or could agree on the math. During the 2008 Panic, Marc Lescarret saw the shady math change right in front of him.  He was following the Morningstar average credit quality, which used fungy math to determine it. During the crisis, MorningStar removed all average credit quality statistics, which were later reset using more realistic assumptions.

Had there been no loosening of government regulations, the emergence of underfunded insurance (the 2008 fake asset), the billions in profits, millions in job creation, and a get-rich gold rush in selling real estate and loans would have likely never happened. Unfortunately, once confidence in the system fell apart, everything that was built came crumbling down because the promise of protection (Insurance, which gave banks confidence to lend) was never real to begin with. This abundance of funds to lend made a world where anyone with a name could qualify to buy a home at almost any price, resulting in a housing bubble, a crash, and a financial crisis that took nearly a decade to recover from.

Enter Crypto: The Modern Fake Asset?

Fast forward to today, and there’s a new darling of speculation that is aggressively growing in magnitude: cryptocurrencies.

• The total crypto market has soared to over $4 trillion (7/27/25, CoinGecko.com) , nearly 15% of the U.S. GDP of ~$30.5 trillion(7/27/25, Wikipedia.org)
• Bitcoin mining alone consumes more electricity annually than the entire nation of Finland.
• Major financial institutions are starting to accept crypto as collateral for loans.
• Data centers are being created to accommodate crypto processing, and it's driving the costs of electricity higher.
• Hundreds of thousands of crypto jobs are being created.

Cryptocurrency produces no earnings, cash flow, or tangible backing—hallmarks of what Warren Buffett might call a “greater fool” investment. It only has value as long as there’s someone willing to pay more for it. No country issues or backs a crypto, nor would they go to war to defend it. It's buyer beware.

This is eerily similar to the pre-2008 CDS: a financial product detached from real-world fundamentals. Worse yet, Marc Alan Wealth Management has spoken with many Crypto enthusiasts and observed extreme greed in this space, and has encountered the same pattern and complex explanations for why cryptos have stored value.  Phrases like "you can now buy intangible things such as NFTs, and it has a use now" sound similar to the 2008 words "It doesn't matter if people can afford their monthly payments, the rising housing prices take care of the issue" sound similar.  Or "Crypto used a complex system of equations that make it impossible to crack" sounds like "it doesn't matter if all the loans are bad, we will just assign tranches and the A-rated tranche will be the first group to collect any payment." This sounds just like today's argument for Stable Coin (A crypto coin that promises stability)!  Or Bitcoin is too big to fail! (Just like the AA-rated AIG Insurer before the 2008 meltdown.)

The reality is that anyone can make a crypto security, Coca-Cola, Nintendo, and even the next U.S. President, which did happen, and it even happened to his wife. We also had a coin named after the killer of the United Health Care CEO, and a Fart coin that once rose by over 1,000% in less than a year. The more demand we see for crypto, the more new issues and competitors we will see emerge. If only one company, such as Bitcoin, existed with an agreed limit on supply, a system could be sustainable, but in reality, there are few barriers to entry for generating your own cryptocurrency, so future supply is unlimited. Meanwhile, demand is driven by speculation, emotions, and perception. Once we are afraid of it, it can become worthless overnight, since it has no real use, no prospect for earnings, or nothing even physical to support its existence. In the stock market world, if a company has earnings and the price falls, it might be called a bargain and will ultimately be purchased if the earnings remain strong; you could never make that argument for crypto.

Suppose the crypto markets went to zero overnight. You would hear the Phrase, "This wasn't supposed to happen." The speculators will be decimated, but, as in the 2008 crisis, all the jobs, secured loans, and infrastructure built could also be wiped out.

What’s the Spark This Time?

In 2008, falling home prices triggered the implosion. For crypto, the trigger could be:       

• A major hack or unraveling of a lower-tier coin, causing contagion across digital assets.
• Regulatory crackdowns by governments targeting energy consumption or illicit uses.
• Loss of confidence as investors realize there’s “nothing there” to support valuations. If no more celebrities or media hype up the investment, there will be no new buyers.
• AI itself can one day decode the complexity of the blockchain.  Your cellphone has more powerful computing than old rocketships, and yet you think no one will ever quickly and easily decode the blockchain!

Imagine if Dogecoin or a midsize crypto collapsed overnight. Would holders of Bitcoin and Ethereum feel safe? Or would we see a cascading selloff?

And what happens to the loans collateralized by crypto when its value plummets? As in 2008, a collapse in fake asset values could force a wave of defaults and job losses in industries built around the crypto economy. Just like any bubble, when you start borrowing to buy more of the inflated asset, it's not going to end well. The bursting of the bubble has a compounding effect; for example, you don't buy more crypto when you lose your job, and banks stop lending money when defaults rise.

Could It Be Worse Than 2008?

The crypto ecosystem has already created hundreds of thousands of jobs, and this figure will likely grow into the millions in the next few years. Borrowing against crypto has gained in popularity, and new infrastructure for crypto mining is growing. But it could all be wiped out in a crypto depression. If crypto’s foundation proves as fragile as 2008’s CDS markets, the fallout could cripple not just tech startups but also banks, pension funds, and consumers indirectly exposed.

One of the scariest thoughts is that the total value of the crypto market is approximately 15% of the value of the US economy, and what is to stop it from becoming 50%, 100%, or even 200% larger than our own economy. Crypto is stealing resources needed for useful infrastructure, such as roads, bridges, tunnels, railways, and air travel, and is currently driving electricity costs higher. A major crypto crash in the future could leave us with outdated, useless infrastructure, causing more inflation and job losses. Each major malfunction could result in a domino effect that impacts many businesses across many industries, and with our government's current deficits, it may not be able to come to the rescue. 

Why It’s Not Over Yet

It’s crucial to recognize we may still be in the early-to-mid stage of this cycle. In the early 2000s, it took years before housing excesses reached their breaking point. Similarly, crypto could continue to grow, especially if Fed rate cuts add more liquidity to markets.

But as history shows, bubbles don’t deflate gracefully—they burst or stagnate and result in another decade of lost wealth.

Staying Vigilant in a World of Rhymes

At Marc Alan Wealth Management, we’re watching these risks closely. While it’s impossible to time the next crisis, we believe prudent investors should:

• Focus on assets with real earnings and intrinsic value
• Diversify across sectors and geographies
• Employ option strategies to hedge against tail risks
• Stay nimble and informed

Because while history may not repeat, it sure as hell rhymes—and the next verse could be closer than we think.

Schedule a consultation today to learn more about how we manage risk.

Disclosure: This content is for informational purposes only and should not be considered financial advice. The article is based on Marc's opinion, which was developed over years of past observations and research. Past events are not indicative of future ones; there is no guarantee that any future events will happen. All investments carry risk, including loss of principal. Marc Alan Wealth Management is not responsible for any decisions made based on this content. AI was used to assist in drafting this article for efficiency and clarity.