The greater Fool theory is a concept that is famous in modern economics and was brought to the center stage by the 2008 financial crash. In the popular world of Cryptocurrencies, the greater Fool theory seems to take over the market but why does it play a huge role in people’s behavior and how to be a better investor?
What is the Greater Fool theory?
Greater fool theory states that investors can achieve positive returns by buying an asset without concern for valuation fundamentals and other important factors because someone else will buy it at a higher price.
Investors employing this theory may even think assets that they are purchasing are overvalued based on fundamentals or long-term performance outlooks, but they still expect to make a profit because another investor (the “greater fool”) will be willing to pay even more.
The greater Fool theory is a strategy that pivots the traditional mindset of looking at the valuation of an asset and instead focuses on you banking your Investments on the expectation that someone else will get caught up in market momentum or have their own fundamental case for why the asset is worth more than the price you paid.
The 2008 financial crash and the Cryptocurrency world today are real-life examples of how this greater Fool theory took place in our daily life. The 2008 financial crash was centered around mortgage backed securities that not only got the momentum of the investment banks and investors but at the end nobody wanted it due to the realization that it has no value.
Why does it play a huge role in the Crypto World?
The Cryptocurrency was built upon a revolutionary technology blockchain that was meant to ease the financial and banking system but the Crypto Market does not seem to reflect this.
In the crypto world, the greater Fool behavior and investment strategy seems to take over the market. The market has been dominated with hype and speculation as most people see it as a quick rich scheme.
However the greater fool theory, on which the cryptocurrency world has thrived until now, is not likely a long-term sustainable economic option.With the recent Crypto crash wiping out $2 trillion from its valuation, it serves as a lesson for investors to learn the utility and valuation of the asset they are owning.
How to be a better Crypto Investor?
As a human being, it is always easy for us to trust the majority even though the majority is not always right. As aptly put by Benjamin Graham, “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
To be a better crypto investor is to understand the utility and the business plan of the crypto you are considering purchasing and only seal the deal when it makes sense and then let it grow in the long term. A lot of people might give you huge promises of lucrative returns in the short term but do realize that it’s your choice to analyze and assess what is right for you as an investor.
“Your job as a smart investor is to separate the facts and the news from the fiction and the noise. ~ Chamath Palihapatiya”
We in Nagaya Technologies Pte Ltd are aware of this Greater Fool theory spreading in the crypto market. That is what leads us to provide weekly seminars and transparency reports to help equip our coinholders with the necessary information regarding Nagaya. Our hope is that our coinholders purchase Nagaya because they truly believe in our vision for the future. To receive latest updates and information about the world’s first hybrid cryptocurrency Nagaya, you can visit us at nagaya.io
Or you can talk to us at t.me/nagayaofficial