The old story of investing in new technology

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“It gives women a feeling of freedom and self-reliance. I stand and rejoice every time I see a woman ride by on a wheel.”

— Susan B. Anthony on bicycles

The 1880s saw bicycle riders shift from sitting directly — and precariously — above the comically giant front wheel of a Victorian penny-farthing to the far safer position between the two normal-sized wheels of a modern bicycle.

The change was enabled by the innovation of chains that transferred pedal power to a bicycle’s rear wheel, leaving the front wheel just for steering. Further innovations like diamond-shaped frames, weldless steel tubes, and pneumatic tires soon completed the bicycle’s transformation from a dangerous novelty into the practical mode of transport and exercise we know today.

The safer, smoother and more comfortable ride was an immediate hit. Within a few years, bicycle manufacturing became a booming industry, with the number of manufacturers in Birmingham alone rising from 72 in 1889 to 177 by 1895.

This set off a mania among investors that the authors of Boom and Bust: A Global History of Financial Bubbles describe as “a particularly clear illustration of the usefulness of bubbles.”

Manic investors drove an index of cycle shares 258% higher in the first five months of 1896, which attracted a boom of new stock market listings: In the two years to 1897, 670 cycle, tube or tyre firms floated shares on England’s regional stock markets.

Many of these were of the lowest quality, such as Accles Ltd., which sold £135,000 of shares but reported just £71 in revenue before filing for bankruptcy less than two years later.

Predictably, cycle shares lost 73% of their value from the peak of Bicycle Mania in the early months of 1896 to the end of 1898.

As painful as it must have been for investors, the bust was probably worth it: The investment bubble accelerated improvements in tire quality that later enabled the automobile industry and spurred advances in machine tools and ball bearings that spread throughout English manufacturing and beyond.

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Better yet, the flood of affordable bicycles the bubble produced had a modernizing effect on society that no one could have predicted.

The Victorian social expectation that women be chaperoned when traveling was shattered when bicycles became widely available — chaperoning a woman on a bicycle was impractical, and there were simply too many riders for Victorian men to police.

This also sparked a “rational clothing” movement, as the impossibility of cycling in restrictive corsets and skirts led to the development of more practical dresses.

It’s hard to overstate what a radical change that was.

“Let me tell you what I think of bicycling,” Susan B. Anthony told the New York World in 1896. “I think it has done more to emancipate women than anything else in the world.”

Such was the popular association between feminism and cycling that the bicycle became the symbol of the suffrage movement — women rode free from Victorian social norms on a booming supply of modern bicycles.

For that, we have the overenthusiastic investors of the 1890s to thank.

Invest like it’s 1999?

In 1999, Warren Buffett warned that world-changing technologies are often ruinous for the investors that correctly predict them.

The auto industry was one example: “If you had seen at the time of the first cars how this country would develop in connection with autos,” he told the annual gathering of VIPs at Sun Valley, ID, “you would have said, ‘This is the place I must be.’ But [out of] two thousand [auto] companies, as of a few years ago, only three survived…so autos had an enormous impact on America, but in the opposite direction for investors.”

Airlines were another: “Imagine if you could have seen the future of the airline industry back there at Kitty Hawk. You [would] have decided, this is the place to be.”

But “as of a couple of years ago,” he noted, “there had been zero money made from the aggregate of all stock market investments in the airline industry in history.”

That was Buffett’s way of warning his VIP audience they could be right that the internet would change everything — and wrong that investors would profit from it.

The dotcom bubble popped eight months later.

Today, artificial intelligence is the obvious candidate for the next world-changing technology to ultimately disappoint investors: It probably will revolutionize everything; but which companies, if any, will capture the value it creates remains anyone’s guess.

Crypto is another.

The news this year was shockingly good — the SEC flipped from anti- to pro-crypto, the GENIUS Act legalized stablecoins, prediction markets went mainstream, TradFi institutions scrambled to get involved — but token prices have been shockingly bad.

That might just be because expectations got ahead of reality.

But it might also be a sign that, however much value crypto ultimately creates, little of it will accrue to the investors that funded it.

People are excited about the tokenization of real-world assets, for example. But if most of those assets are tokenized by Robinhood, BlackRock and the DTCC, the crypto investors who financed the infrastructure that made tokenization possible won’t capture much of the value it creates.

Similarly, the crypto industry has devoted billions of dollars to developing zero-knowledge proofs, and it’s easy to imagine how these could be great for the world — they may be humanity’s last line of defense against AI slop.

But they may also be terrible for investors: ZK proving is math that doesn’t need a tradeable token to function.

There are many more such examples — likely because the value that crypto set out to create was not meant to be captured.

Just the opposite: Composable, open-source, decentralized crypto was meant to disintermediate the rent seekers of technology and tear down the toll booths of finance.

At the end of a disappointing year for token prices, it’s tempting to conclude that crypto is progressing too slowly toward those goals.

But if crypto turns out to be as good for the world as bicycles, no one should complain if it’s also as bad for investors.

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