Why crypto attracts novice investors? “Black Swan” authors explain.

  • The author feels the attraction towards crypto despite the high probability of losses is because of ‘survivorship bias.’
  • Taleb says that the industry has failed to produce anything capable of generating cash flow. 
  • Bill Gates feels the crypto industry is based on “The greater fool theory.”

An event that is highly unlikely to occur, or a once-in-a-generation event, is called a “Black Swan Event” it is considered so as one seldom sees a black swan in the wild. The FTX saga is a black swan event of the crypto industry. Even though the industry is dotted with similar events, like the Terra Ecosystem collapse, Crypto winter, etc., it still attracts novice investors with the hopes of huge profits. But the complexity of the industry causes them to incur losses. 

Modern philosopher, prominent mathematician, former risk manager, and author of the best-selling book “The Black Swan: The Impact of the Highly Improbable” Nassim Nicholas Taleb has shared some messages for his audience on Twitter, explaining why crypto attracts inexperienced investors. 

Investors usually enter the world of cryptocurrency with high expectations, even after such diverse opportunities to lose money to deceits, volatility, etc. According to Taleb, it’s a matter of perception. Even after such grave turmoils, if the user is still in the market, there must be some positive side to the whole conundrum. 

It all becomes clear when looked through the lens of “survivorship bias.” Each survivor has a different perception of the ordeal; some find it encouraging others suffer from PTSD. Even Nicholas used to praise Bitcoin and crypto as opposed to banks. He then turned out to be a hater of the industry. He recently called BTC a ‘tumor that metastasized because of Disneyland economy in the US.’

Authors’ view on Crypto Industry.

The recent industry crisis, according to Taleb, is only because of a lack of cash flow. 

Any asset’s market price depends on its ability to generate cash flow. And the crypto industry has failed to produce anything that can generate cash flow. It’s a circular income in the industry, crypto-to-crypto. 

Bitcoins do not generate any cash flow or profits for their buyers. They are forced to believe the industry speculations, which is not a good business model. When BTC offered low interest the author said that Bitcoin was “a perfect sucker game.” 

Bill Gates’ view on the industry.

Even Bill Gates suggested that cryptocurrencies are 100% based on “the greater fool theory.”

This interesting theory states, “during a market bubble, one can make money by buying overvalued assets and selling them for a profit later.” 

Meaning that, for whatever reason, someone will always be there to pay a higher price for something. 

Bitcoin is trading at $17,174.57, with a 0.10% increase in the last 24 hours. At the same time, volume is down by 29.95% at $12.7 billion.

Nancy J. Allen
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Source: https://www.thecoinrepublic.com/2022/12/11/why-crypto-attracts-novice-investors-black-swan-authors-explain/