Tobold's Blog
Monday, November 14, 2022

Imagine you read my previous post about Age of Wonders: Planetfall and it influenced you to buy the game, but you then discovered that you didn't like the game at all, and wasted your money. Or you followed some fashion influencer's advice on the latest style, but your friends made fun of your outfit and told you it wasn't fashionable at all. Those are the dangers of listening to people on the internet, who are often described as "influencers" for a reason: Other people might follow their advice. The good news about me recommending games, or the fashion influencer recommending a style, is that your risk is relatively low. $50 for Planetfall if you bought it on Steam (but they have a refund policy), or somewhere closer to $5 if you bought a grey market key as discussed in that post. The bad news is that people also tend to listen to financial influencers, as I already wrote about some months ago.

This month another crypto crash event happened, with another crypto company called FTX going bankrupt, and Bitcoin crashing another 20% (which today is worth 71% less than a year ago). And FTX famously was a huge sponsor for financial influencers on platforms like YouTube. Although these financial influencer channels pretty much all come with the #NotFinancialAdvice warning, a lot of people rather listened to that financial advice than to financial advice from their dads. And nobody follows investment advice to just risk $50. A lot of people lost a significant part of their savings, which isn't good news in the middle of a cost of living crisis.

Now even bankers and hedge funds were fooled and lost money on FTX, so one might argue that the financial influencers just fell for the hype. But with sponsorship deals from FTX being as high as $50,000 per month, it appears obvious that at least some of the hype was faked. We have a largely unregulated crypto industry, billion-dollar crypto companies being run by inexperienced people with no checks and balances, and the whole thing is marketed by YouTube influencers, most of which don't have much financial experience either. And that in a market that is full of scammers, and extremely short on consumer protection.

This is not financial advice, but in my opinion the domino effect of crypto companies going bankrupt isn't over. I never owned any bitcoin or other crypto currency, but if you still do, you might want to get out before all those crypto currencies reach what is their fundamental value: Zero.

That's one way to address inflation...
One of the fascinating things about the crypto phenomenon is that it spawned its own pseudo science. Some clueless investors took a punt without too much thought but there are others who immersed themselves in analysis of "support lines" and "gas" and "polarity" and believed that they knew enough to beat the market. They may as well have studied astrology but it didn't matter for a while because if enough people believe that a market will rise then it becomes a self fulfilling prophecy. That is until someone realises that it is all bogus and tries to get their money out. Then everything collapses.

The r/gme subreddit is a fascinating study of human behaviour when it comes to money and investing. Two years after the fabled "Mother Of All Short Squeezes" failed to happen the diehards are still buying and holding as they wait for the price of this fairly non descript stock to "hit the moon". The subreddit is fully of lengthy analyses of share prices and market mechanics explaining why they haven't all become millionaires yet (TLDR corrupt financial regulators) and proving through jargon backed logic that it is only a matter of time. Nobody asks where these many millions are going to come from. I am pretty sure that institutional investors have avoided the stock like plague since it became a meme so it is really just the Hodlers own money that is now floating around.
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