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When I had crypto assets, I came upon this article about “Greater fool theory” https://en.wikipedia.org/wiki/Greater_fool_theory https://en.wikipedia.org/wiki/

• Jistern 4y ago
  Yup. You nailed it. It's a fad which which most buyers and sellers use as a means to engage in gambling.
  • p0d 4y ago
    Agreed. My friend said to me, "do you believe in cryptocurrency?" I thought to myself no, and sold it. I can see now my motivation was greed and fomo. Neither of which are values I live my life by.
    • Jistern 4y ago
• nightski 4y ago
  So you basically don't invest in anything because that theory can be applied to any asset.
  • GeneralMayhem 4y ago
    Most assets are, at least in theory, backed by something that can turn a true profit in an efficient market. Anything that's based on capital-intensive resource extraction can pay a dividend on the profit from that capital. Anything that's based on real estate will go up in price as population increases. Anything that's manufactured or based on IP can pay a dividend based on the value delta between inputs and outputs. In general, anything that turns a raw material of some sort into a more refined product (be it iron ore into steel, steel into machines, or electrons into advertisements) is adding economic value into the system. By doing that work, the total net wealth of humanity increases. The economy is positive-sum, and so investing in anything that's correlated with the economy as a whole should be worthwhile. Bitcoin doesn't work that way. Trading Bitcoin isn't adding to the total net worth of humanity. Mining Bitcoin arguably could be, because the ability to make transactions has some value, but the practical value of those transactions is less than the value of the electricity, computer hardware, and pollution that go into making them. Speculating on Bitcoin does nothing productive; it's zero sum. Net-zero systems are nearly indistinguishable from gambling unless you have insider information.
    • aaronwalker 4y ago
      There are many different lenses in which one could look at Bitcoin and say that it’s making humanity more productive. One that comes to mind especially for Bitcoin is that it “could” act as a global store of value, independent of any one geopolitical power. Many countries lack stable and non-corrupt currencies, and many people in those countries cannot trust putting large sums of money in their economy, for fear that they will be taken away from them. If BTC stabilizes in value sufficiently, people in those countries could use it as a store of value—like gold, but easier to obtain. Id argue that the idea of having a digital store of value does increase the productivity of the world, because people don’t have to rely on inefficiently hoarding gold, or paying fees for buying gold in the stock market.
      • GeneralMayhem 4y ago
        Like I said, mining Bitcoin can be argued to be adding value. Pure speculation can't - except via the second-order effect of encouraging more mining - so we shouldn't be surprised when speculators lose their gamble.
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  • kareemsabri 4y ago
    Like a house?
  • thrwyoilarticle 4y ago
    Coinbase recently offered a bond that paid 3.3750% interest. As long as they don't default on their payments, that will have objective returns outside of any market forces and greater fools. The price you can sell it for fluctuates but is immaterial if you hold it to maturity. Of course, it's very unlikely that anybody in this thread bought them because in reality we are looking for gains correlated to hype/market performance/inflation/interest.
• barnbuilder 4y ago
  What is the difference between something explained by the "Greater Fool Theory", and any of the numerous things that simply increase in value over time due to increased demand and/or rising scarcity? It seems to me the only difference is whether the speaker is predisposed to not like the thing in question.
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  • jpgvm 4y ago
    To qualify for greater fool something must a) overvalued vs its utility and b) purchased on the sole assumption that it can later be resold at a higher value. This leaves you with a surprisingly small amount of assets. Collectibles probably. I think the epitome of greater fool is probably NFTs. Unlike a real piece of art you don't actually own anything unless additional value is conferred to you by owning it from the issuing entity, like say legal copyright over the referenced piece in question (if its art).
    • aaronwalker 4y ago
      > Unlike a real piece of art you don’t actually own anything What is it that you actually own when you buy a physical art piece? Is it the actual canvas and the paint on top? If so then that is definitely not worth hundreds of thousands of dollars on its own. Or, more likely, is it the fact that you own the original, and that the artists could never make an exact replica, unlike with NFTs? Even though you can make an exact replica with NFTs, everybody agrees on the original, and therefore the exact replica has no value. With art you could make a near perfect replica, but everybody would still agree upon the original, and therefore the original is the one with real value. IMO NFTs and physical art are still very similar.
      • jpgvm 4y ago
        That would be true if the actual NFTs stored the art in question, or even a cryptographic fingerprint of it. Generally speaking most NFTs are just a URL that usually points to some random webserver on some random domain, both of which could entirely cease to exist at any time or be taken over by another party. i.e your dumb ape picture could now suddenly become furry porn. Real art (assuming proper steps to preserve and protect it) will remain as it was while it's in your care. You -own- it, you can take it where you please, store it how you please, etc. NFTs aren't like real-art at all, they are at best analogous to in-game collectibles - entirely subject to ToS but even those are less predatory and ponzi-like than NFTs.