Founder of Mechanism Capital: Excessive Worry About Bubbles is Foolish

Original Author: Andrew Kang, Founder of Mechanism Capital

Compiled by: Ken, Chaincatcher

For those who have experienced at least one complete market cycle, you develop an instinct to be wary of price increases that far exceed historical growth rates. Witnessing the dot-com bubble, the 2008 global financial crisis, and the rise and fall of cryptocurrencies will trigger pattern recognition alarms in your brain. You hesitate to enter the market due to high prices, yet you also want to sell your assets out of fear of a peak.

But it is important to recognize that we are in one of the most profound and unique asymmetric moments in history. The only action to take right now is to extend your time horizon and completely abandon short-termism.

Being overly concerned about bubbles is foolish. Attempting to time the market is also foolish. Short-term fluctuations and corrections will always occur, but given how close we are to the "singularity," these fluctuations are merely noise. The fields of artificial intelligence, robotics, energy, and innovation are set to experience explosive growth.

In the next decade, we will have billions (or even more) of AI agents in the workforce, humanoid robots, space data centers, multi-planet colonization, and significantly improved medical therapies; we will fundamentally change the pace and output of technological breakthroughs across all fields. The technological advancements and economic growth we will compress into the next twenty years will surpass the total of human civilization's entire history.

We are already in a very steep phase of the J-curve, but this is hard to perceive when we narrow our perspective to daily or weekly micro-levels. 100% of the product code at Anthropic is now written by Claude. Product managers have a virtual team of software engineers whose efficiency seems capable of bending time. Companies that effectively utilize AI are seeing their product iteration speeds increase not by single digits, not by double digits, but by triple digits.

Moreover, the capabilities of these tools are still evolving at an even faster pace. Whether we officially reach artificial superintelligence (ASI) in 2027 or 2029 is actually not important. It is bound to happen. By the time it is officially announced, the prices of the assets you want to own will have already multiplied countless times.

It is highly likely that the actual economic growth in the next 3-10 years will reach levels of 20 standard deviations (20-sigma) under any historical distribution model. This growth, once thought to be nearly impossible, will be driven by unprecedented second and third-order transformations. Traditional valuation models can no longer price these transformations. The potential upside is so vast that traditional present value calculations struggle to capture them.

The speed of wealth appreciation will be astonishing, much like how cryptocurrencies initially created numerous billionaires and millionaires in a short time, but this time the scale will be far more extreme. If you have no risk exposure, facing such vertically rising asset prices, it will be difficult for you to buy in; but unlike previous bubbles, the creation of real economic value will be able to keep pace with the vertical rise in asset prices. Over the past three years, those who have operated in the market with an "exponential vision" have reaped significant rewards. If you have not adopted this mindset yet, it is not too late.

While it is important to always be aware of downside risks, this is the largest upside risk in world history. Learn to endure risks over a longer time dimension. Now is not the time for swing trading. For the vast majority of people, long-term investment performance typically outperforms short-term trading, but the gap in expected value between "trading" and "investing" will be wider than ever before. One must ask, what is the value of the call option embedded in the singularity?