2007-08 Crisis Used Explains How the Crypto Market Bubble Burst in 2022
Usually, the greater fool theory is applied to market bubbles. When a product or asset sees a huge increase in value, usually rapidly and in a way that does not seem sustainable. Typically, market bubbles are caused by overly optimistic (or hopelessly naive) investors who sign up for unlikely projections about the future. Fools buy foolish products at foolish prices. However, where there are fools, there is business to be done. Here are two examples of how the greater fool theory works in real life.
Art. Mark Rothko’s No.7 sold for $82.5 million in 2021. That’s a lot of money for oil on canvas, and I’m not saying Rothko is a bad artist or a bad painter (on the contrary). A lot of people make a lot of money trading in art – some buy it because they love it, others do it to launder money. All that matters is that someone else will pay more for a work of art no matter how inflated or eye-wateringly expensive you or I think it is. Buying and selling art is not so much about finding good art as it is about finding fools who will see it as such (and buy it as such).
Same with real estate. The financial crash of 2007-08 was caused by cheap credit, lax lending laws, and subprime mortgages. One of the pins that burst the bubble was when the market ran out of fools. It was widely believed before the crash that real estate values always increased, so bankers and speculators sold their (dodgy) loans to other banks for a profit, who then sold them again. When the assets began to go bad, a few banks – the last fools standing – went bankrupt, and the rest is history.
Why Are Gates & Buffet Against Cryptocurrencies & NFTs
Bill Gates told TechCrunch that NFTs (non-fungible tokens) and digital currencies were “100 percent based on greater fool theory.” Or, as Warren Buffett said in 2020, “Cryptocurrencies basically have no value.” All you can do is sell it.
Gates, Buffett, and various economists claim that cryptocurrency has no “real-world” value. Therefore, cryptocurrency is simply a bubble in which people try to out-fool each other. Nothing more than a money-making scheme to buy and sell higher. Crypto will collapse when people realize this. Is this a fair analysis of cryptocurrency?
Via this site Cryptocurrency and the “greater fool” theory of economics – Big Think
Author
Chris Munch is a professional cryptocurrency and blockchain writer with a background in software businesses, and has been involved in marketing within the cryptocurrency space. With a passion for innovation, Chris brings a unique and insightful perspective to the world of crypto and blockchain. Chris has a deep understanding of the economic, psychological, marketing and financial forces that drive the crypto market, and has made a number of accurate calls of major shifts in market trends. He is constantly researching and studying the latest trends and technologies, ensuring that he is always up-to-date on the latest developments in the industry. Chris’ writing is characterized by his ability to explain complex concepts in a clear and concise manner, making it accessible to a wide audience of readers.
