Cryptos and NFTs! The whole market is driven by FOMO and Hype.

Before I start showing you some obvious red flags. Let me make a statement about the underlying technology.

Blockchain is a highly secure peer-to-peer network architecture, and it has potential to replace the internet. It is surely promising with its decentralized structure, immutability, traceability, and security. It is solving the major problem that our internet has today.

So learn the technology, don’t try to wrap your head around the meme stocks. Before you invest, ask yourself, The asset that I am going to own, does it have any intrinsic value which I can justify against its current market price? If the answer is no then there are high chances that those short term assets could become long term liabilities.

If you look at these 2 markets!! Cryptos and NFTs you will notice that these markets are driven by hype. These markets forming a bubble and bubbles are often led by FOMO- Fear of Missing out.

We see other people are getting rich by these products, and we start judging ourselves. Our human behaviors start comparing us with them, its Human Psychology. We see teenagers, people with no education or financial knowledge are becoming better than us, getting more rich.

This is where greed and fear comes. Greed drives the need of jumping into the hype to make more money and fear causes FOMO effect. Where more people dive down into the hype which creates cash flow for that asset and gets its price pumped up, as more people joins this, bigger the bubble becomes.

This is exactly the same pattern followed in the DOT COM bubble in late 90’s. During this era investors pumped money into Internet-based startups in the hopes of making some money, which led to crash.

This basically means creating a fake demand. This is economics 101. Pump-and-dump schemes are unfortunately already messing up crypto and NFT worlds. Basically a group of people buys NFTs or cryptos and creates a fake demand in the market, this pumps up the price of a product. Once they inflate the price, the schemers start selling out when prices are high and people who have no idea what’s going on end up with holding so called digital assets which could become worthless if there is no demand in the market.

Before you invest in any product ensure that the current market price of that product is justifiable, otherwise you’re playing the game of speculation.

Take any stock, their price is justifiable by their number. By numbers I mean a company’s financial performance, is a company increasing their profit year on year basis, is a company expanding their market, does the company currently have any debt, what is the market cap for this company, what are the products and services this company has. And these questions are just the tip of an iceberg. There are “n” number fundamentals you can validate before you invest your hard-earned money.

Which is missing in Cryptos and in NFTs, these are the product of gossip, social media memes and paid YouTubers! Some social media influencers are even creating their own coins. This is insane.

Do I mean everything is pure garbage out there?

No!! Some digital products have justifiable intrinsic value. For example, an artist selling his art. If an item is a collectable piece, sure why not!

It could be singer whos selling his song rights, or Leonardo da Vinci selling digital Mona lisa. Something which has a value!!

At the time of writing this article there are more than 10,000 crypto currencies and new crypto currency is getting added into this market every week if not every day. Out of these pools only the top 20 cryptos make up the 90% of the market. 90% of cryptos are still struggling and people keep adding new currencies every day.

Same goes for NFTs, Today crypto-punks were famous, tomorrow crypto-monkeys, bunnies, robots and what not. List is endless. So calling it unique makes no sense. Creators can literally create billions of such digital arts.

You buy the assets only if you think it could have a value, Can it give you profit without getting twisted in the hype. Hype is a variable that is driving the value of your product. What makes it unique if it is independent of the hype, The real intrinsic value of the product. Such as owning the rights of a video of Michael Jackson’s moonwalk, which are sold by MJ himself or any authorize party.

So if it really was a currency then you don’t want such sharp price moments. Today, cryptocurrencies are just speculated currency.

Take this for an example Dogecoin’s price surged after Elon Musk’s tweet, it plunges when he refers to it as hustle on SNL.

If I bought an iPhone for 1000 dogecoin in the morning, and by the evening price of dogecoin plunges by 10%. Now the same phone is going to cost me 10% more just because the price of a currency changes.

Yes, markets are volatile but currency shouldn’t. currency is the underlying object, every single asset and liability is traded on currency’s value. So fluctuations in currency and fluctuations in the market can not go hand in hand at same time. One has to stay stable to keep the stability in the economy.

Speculations are still ok, but excessive speculation is big big red flag. Here people keep trading the market where each is hoping to book more profit which skyrockets the price of the product. It is the speed at which price changes!

Hot potato is a game where a group of people toss any object or potato to each other while music plays. The player who is holding the potato when the music stops is eliminated, and in the end the last person who’s holding it ends up with a potato. So in the investing game, one buys NFTs with the expectation that in future someone will buy that NFT for more value than what they paid. This will take hot potato off your hand and they’d make a handsome profit. The problem here is people only see hype of the product they are interested in rather than knowing what this product actually is worth. In the end the winner only gets a potato not a bar of gold which they thought it would be. This type of investing is driven by 2 human emotions.

Just do not invest in something you don’t completely understand. Learn first before you go all berserk in it.

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