Crypto Collapse Shows Us Who The Biggest Fools Are | by Joe Duncan | June 2022
Hype leads to market mania. Market mania leads to shattered 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 a few changes. As it makes its long, slow nose-down descent toward a crash landing, advice litters the internet on whether you should HODL (wait for life) or sell what you’ve got.
Either way, if you own a substantial amount of Bitcoin (or any other crypto for that matter), all you can do is hope for the best.
This is because Bitcoin runs on fools and lacks fools. At least, according to Bill Gates, who thinks it’s all “100% based on some dumber theory”.
In economics, the dumbest theory is when an asset (a stock, an MLM, a Bitcoin) has its value artificially inflated by a limited number of newcomers who don’t know any better.
Just like a multi-level marketing scam.
If I have an apple that I bought for $1 at the store and I can convince someone to buy it for $2, I just doubled my money and that person bought an overpriced apple. But if that person sells that same apple to another person for $4, the apple has quadrupled in value for no reason.
Repeat this process enough times, assuming enough people are willing to pay extortionate prices for apples; eventually, you could end up with a $67,000 apple or Bitcoin.
The problem with this trading model is that the asset becomes overinflated and you end up running out of fools. Either that or an economic downturn is coming and people have to sell off the assets they’ve been clinging to and wait for the value to rise in order to pay their bills and continue to live comfortably.
The biggest fool theory is the cornerstone of the speculative bubble, the mechanism of market mania.
Once upon a time, these basic stuffed animals sold for thousands of dollars until one day they no longer did.
No matter what you think of the usefulness of blockchain technology, it is certainly no more valuable than truly functional technologies (like Visa, Mastercard, Facebook, Netflix, etc. combined). It’s certainly not worth more than the Intel chips needed to run such technologies.
Twitter, Uber, Zillow, and more are all technologies we use in our daily lives, technologies we’ve been using for over a decade. These are familiar names. Yet the world’s savviest and most rapacious capitalists seem unable to make these ventures profitable.
- We use them daily. They are precious.
- But value is not the same as profitability.
- And price is not the same as value, as the crypto sphere learns quickly.
The price of an apple that I’m trying to sell you might be $67,000, but at the end of the day the value of the apple is always just an apple. You can either eat it or let it rot (and turn it into apple cider or something else).
Anyone can easily get one at your neighborhood market. It has a shelf life (a supply limitation, like Bitcoin), and it takes a lot of work to produce a new one (apples don’t magically appear in the produce section).
In fact, all the reasons people give us why cryptocurrencies are worth investing in are also valid for apples.
We are witnessing a dramatic downfall in the cryptocurrency sphere that many of us have publicly stated will happen all along.
The whole cryptocurrency mania was built on a house of cards, which was destined to collapse one day. And now that it is collapsing (and collapsing), we see pillar after pillar of crypto ideals falling in succession.
- We learned that cryptocurrency is the opposite of the stablecoin of money it introduced to us as (“digital gold”, remember?).
- We learned that cryptocurrency is more volatile than most currencies and even most commodities.
- We have learned that as inflation skyrockets, the value of crypto drops by around 60%.
- We’ve learned that many people’s understanding of crypto boils down to something like “There you go, that’s how it works, you just buy some and the price goes up forever until you be rich”.
As Joshua Edward pointed out in his phenomenal article Cryptocurrency could bring down the economy, “…most legitimate financial professionals have spoken openly against digital coins for the better part of a decade, while highly respected economists have repeatedly stated that there is no evidence that the cryptocurrency can function as a safety net during a recession.”
He is right.
Our current fate of soaring inflation proves him right. In a sell-off, investors lost over $7 billion selling Bitcoin (alone) at market lows.
When a recession looms, money gets tight, people stick to what they trust, and in the big crypto selloff, people prove what they believe. do not trust.
The investment fete has been fueled in part by the speculative nature of cryptocurrency (bigger and bigger fools), and in part by the boom in retail investors that has come with the soaring the popularity of apps like Robinhood and Stash.
But this party has been raging for far too long. Now is the time for everyone to sober up and we find ourselves looking for a safe place to store our money with new worries about the economy here and on the horizon.
It’s no surprise that people can talk about a big game until the shit gets real. Once a threat appears, they tend to fall back on tradition.
All this time, I’ve had almost all my money in Acorns. Old time investors have said it time and time again, never try to “time the market” and get rich quick (that’s what crypto gambling is).
I would much rather take my time and invest in a few ETFs, bonds and a diverse range of stocks, than pin my hopes on untested cryptocurrencies sold to me by hype bros who have every interest in making money. me a fool.