The truth told by the upward-sloping graph: "Bitcoin is at the center of a vast industry now on the rise"

Bitcoin and cryptocurrencies have crashed. New investors experiencing this pace of decline for the first time are gripped with fear. As if they had been waiting for it, the press is pouring out mockery in a lecturing tone. The ones enjoying it most are the economists.

Paul Krugman, the Nobel laureate in economics and professor at the City University of New York, said bitcoin is close to a pyramid scheme. Nouriel Roubini, professor at New York University, said that a cryptocurrency less sophisticated than a seashell can be regarded neither as a currency nor as an asset. Robert Shiller, professor at Yale University, said that because the source of its value is ambiguous it is heavily swayed by psychology, and that he has never once bought bitcoin.

The terror of a crash, already experienced many times

A bitcoin crash is nothing new. Since 2012 there have been more than seven crashes of over 50 percent. And despite the crashes, the skeptics are just as uneasy. That is because bitcoin came back — and when it came back, it formed its bubble at a price level far higher than before the previous bubble burst.

The view that bitcoin has no value is not the skeptics' alone. Investors who rush to sell even a second faster when the price falls share this view as well. That is why it collapses so easily at a single tweet from Tesla CEO Elon Musk. Skeptics find it hard to affect the price directly. Crashes like this occur because bitcoin investors lack conviction. The criticism that they were drawn by a speculative craving for a windfall is not wrong.

Even in a catastrophic crash like this, one can find something good. An occasion for reflection is one of them. When the market is good, investors are confident that their choices rest on sound grounds. But once a crash begins, they easily forget. Wrapped in doubts no different from the skeptics', they end up making choices that are hard to undo.

A clue can be found in Professor Krugman's criticism. He said bitcoin is no different from a pyramid scam that fattens existing investors with the money of new ones. This is a true proposition. But it is a proposition that applies to nearly every asset market. Returns earned in the secondary market for an asset, as opposed to the primary issuance market, do not contribute directly to the formation of that asset.

New investors' money is converted into existing investors' returns; in business administration this is explained as a transfer — or a discovery — of value created by differences in discernment. The existing investor recognized the value before the new investor did, and is compensated for having paid the price for it. It is because of such differences that asset markets and mergers and acquisitions (M&A) exist at all. If everyone valued the same asset identically, transactions would dwindle and then vanish.

If, as Professor Krugman and the investors frantically dumping bitcoin believe, bitcoin were nothing more than a structure in which earlier investors suck out the precious resources of new ones, then bitcoin would have to do nothing but oscillate between bubble and collapse. But the swings of bitcoin and cryptocurrency are fundamentally no different from those of a stock market that trends upward over the long run. If there is a difference, it is only that the swings are faster and the upward trend is clearer. Economists are overlooking an all-too-obvious fact. The reason smart people fail to see an obvious fact is that they cling to the view they held at the outset, regardless of reality. They have traveled too far — from the thought that bitcoin has no value to the imperative that it must not be allowed to have any.

Because the stock market is a secondary distribution market, the money flowing in is not invested in running the company; but the bitcoin and cryptocurrency markets have the character of both a primary issuance market and a secondary distribution market, because coins are newly issued. Mapping bitcoin onto the stock market, it is as if new shares were issued through a rights offering every ten minutes and the money raised were folded into the company's capital. In most blockchain projects other than bitcoin, investors' money flows continuously to the project's principals. There is, therefore, a separate standard by which to make a careful assessment. One has to check whether the industry is using investors' money properly.

A substantial share of the funds that flow net into bitcoin is used as compensation for the mining business. Miners, in turn, pay a large part of their revenue as electricity charges. Electricity charges are a power plant's income. You may think power plants could earn that income even without the miners, but this too is far too blunt a view. Every power plant has electricity it throws away for technical reasons. If someone consumes electricity steadily during the hours outside the peak times when demand concentrates, that is extremely useful for running the plant. It is the same logic as an airline operating scheduled routes wanting to pre-sell off-peak tickets to travel agencies even at half price.

There is ample evidence that projects other than bitcoin have not simply squandered the money either. To begin with, it is worth noting how this bull market differs from the 2017 bull market. The 2017 rally was led by initial coin offerings (ICOs). The hasty expectation that a new capital market had been created cooled rapidly when the U.S. Securities and Exchange Commission (SEC) declared that all ICOs constituted securities. Had the SEC not banned ICOs, the collapse of January 2018 might have been gentler, or postponed.

The task that remains is an eye for talent — examine your investment perspective

This bull market is being led by Ethereum-based decentralized finance (DeFi) and non-fungible tokens (NFTs). When the government blocked the reckless issuance of securities whose exchange it guarantees, the industry responded by storing objects of value directly in the cryptocurrency itself. Because an NFT puts a game item or a piece of art into a cryptocurrency, it can be called a kind of good. It is not within the SEC's jurisdiction. DeFi centers on computer programs that experiment with a variety of derivative finance built on coins that carry market prices. Even if you lock up the issuer, it can be operated by the program alone, so here too the government finds it hard to intervene. It should be understood that, using the investment money that flowed in during 2017, the industry has spent the past three years searching for new business models and building the foundations of an ecosystem.

Of course, not everyone is honest. A considerable number of projects are nothing but scams designed from the start to lure investors. And even when investors' money is honestly deployed, that does not mean the project survives. Investors' money is consumed by those who are clever but dishonest, or honest but not sharp. This is like an unavoidable law of nature. Even so, an honest and clever minority expands the ecosystem. That is the truth told by the all-too-clear upward-sloping graph.

When the internet boom collapsed in 2000, Facebook and Google either did not exist at all or had little presence. Many investors lost money in the collapse of the internet boom, but their money was poured into new projects like Facebook. Judged by market size alone, the internet has been a platform for pornography and highly addictive games. Yet the streaming and real-time interaction technologies that developed rapidly thanks to that less-than-wholesome demand ultimately served as the foundation that allowed untact platforms to successfully replace a substantial portion of offline economic activity in the era of COVID-19.

The task that now remains for investors is an eye for talent. When the market is good, it is actually harder to tell who is honest and sharp. Their true worth can only be proved by enduring a crash and surviving it. Fortunately, there is a way for investors who cannot commit much time and resources.

They can invest collectively. If you want to invest in DeFi or NFTs, you can choose Ethereum, which carries a large share of those projects. If you want exposure even to the rise of industries not yet known, bitcoin is again the appropriate choice. Investing in individual projects brings both large returns and large risks, but there is no single right answer. It depends on the investor's capital and access to information.

What is clear is that one must not be overwhelmed by the economists' incantation that bitcoin is not money. Once you have made up your mind to invest, you must hold without wavering to the view that bitcoin is at the center of a vast industry now on the rise.

In my experience, over a span of seven years, those who naively held their positions have posted far better investment results than the clever ones.

Oh Tae-min, author of "Bitcoin Was Strong" and "The Genealogy of Bitcoin Wisdom"