Hype leads to market madness. Market madness leads to broken dreams.
Bitcoin has been in the news lately – it hasn’t been good. Its selling price is currently around $20,000 per coin, a massive drop from its peak of $67,000 and some tweaks. As it makes its long, slow dive towards a crash landing, the internet is littered with advice on whether to HODL (hold on for dear life) or sell what you have.
Anyhow, if you own a significant amount of Bitcoin (or any other crypto), you can only hope for the best.
That’s because Bitcoin runs on fools – and it’s running out of fools. At least according to Bill Gates, who thinks the whole thing is “100% based on a larger fool theory.”
In economics, the greater fool theory applies when the value of an asset (a stock, an MLM, a bitcoin) is artificially inflated by a limited supply of newcomers who don’t know any better.
Just like a multi-level marketing scam.
If I have an apple that I bought at the store for $1 and I can persuade someone to buy it for $2, I’ve just doubled my money and that person bought an overpriced apple. But if that person sells the same apple to another person for $4, the apple has now quadrupled in value for no reason.
Repeat this process often enough, provided enough people are willing to pay outrageous prices for apples; Eventually, you could end up with a $67,000 apple — or bitcoin.
The problem with this business model is that the asset becomes too inflated and you eventually run out of fools. It’s either that or an economic downturn is coming and people will have to sell the assets they’ve been holding on to and wait for the value to rise in order to pay their bills and continue to live comfortably.
The greater fool theory is the cornerstone of the speculative bubble, the mechanism of market mania.
Once upon a time, these simple stuffed animals sold for thousands of dollars a piece until one day they didn’t anymore.
No matter what you believe about the usefulness of blockchain technology, it’s certainly no more valuable than technologies that actually work (like Visa, Mastercard, Facebook, Netflix, and more). combined). It’s certainly worth no more than the Intel microchips required to run such technologies.
Twitter, Uber, Zillow and more are technologies we use in our daily lives, technologies we have been using for over a decade. They are household names. But the world’s smartest and most predatory capitalists can’t seem to make these companies profitable.
- We use them every day. You are valuable.
- But value is not the same as profitability.
- And price is not the same as value as the crypto sphere is a fast learner.
The price of an apple I’m trying to sell you might be $67,000, but at the end of the day, the value of the apple is still there just an apple. You can either eat it or let it rot (and turn it into cider or some other product).
Anyone can easily get one at your neighborhood market. It has a shelf life (a limited amount, like bitcoin) and it takes a lot of work to produce a new one (apples don’t just magically appear in the produce section).
In fact, all the reasons people give us for investing in cryptocurrencies also apply to apples.
We are witnessing a spectacular fall in the cryptocurrency sphere that many of us have on record said was happening all along.
The entire cryptocurrency craze was built on a house of cards that was destined to collapse one day. And now, as it’s collapsing (and it’s collapsing), we see pillar after pillar of cryptography’s ideals gradually collapsing.
- We learned that cryptocurrency is the opposite of the stable money store it was advertised to be (“digital gold,” remember?).
- We have learned that cryptocurrency is more volatile than most currencies and even most commodities.
- We learned that when inflation spikes, the value of crypto drops by about 60%.
- We learned that many people’s understanding of crypto was little more than, “See, this is how it works, you just buy something and it goes up in price forever until you’re rich.”
As Joshua Edward pointed out in his phenomenal article Cryptocurrency could shut down the economy, “…most legitimate finance professionals have been vocal in their opposition to digital coins for nearly a decade, while respected economists have repeatedly stated that there is absolutely no evidence that cryptocurrency can act as a safety net during a recession.”
Our current plight of skyrocketing inflation proves him right. In a massive selloff, investors lost over $7 billion selling Bitcoin (alone) at market lows.
When a recession looms, money runs out, people stick to what they believe in, and in the big crypto selloff, people prove what they’re doing don’t trust
The investment party was fueled in part by the speculative nature of cryptocurrency (bigger and bigger fools) and in part by the retail investor boom that has accompanied the rise in popularity of apps like Robinhood and Stash.
But this party has raged on for far too long. Now is the time for everyone to get sober and we are looking for a safe place to store our cash, with renewed concerns about the economy both here and on the horizon.
It shouldn’t be a surprise that people can talk a big game until the shit gets real. Once a threat arises, they tend to conform to tradition.
All this time I had almost all my money in Acorns. Legacy investors have said it over and over again, never try to “time the market” and get rich quick (which is crypto gambling).
I’d much rather take my time and invest in a few ETFs, bonds, and a diversified selection of stocks than pin my hopes on unproven cryptocurrencies being sold to me by hype bros who have a vested interest in fooling me close.