Disclaimer: I am NOT an economist, nor should anything here be read as investment advice. Do your due diligence.
I’m reading “Black Swan” by Nassim Nicholas Taleb, and I’m really enjoying much of what he argues about creating a narrative around events that require no narrative. Black Swan events are unlikely events to which we often attempt to attach mean when they are, in essence, just outliers; albeit outliers with extensive consequences. But our penchant for creating narratives around absolutely everything drives our need to explain these events as some sort of logical progression of other events.
It has been interesting to watch the crypto market crash over the past few days while reading this book. Because it’s all fresh in my mind, it’s been fun watching all the rhetoric come out in the aftermath: everyone has a story to tell about why and how it happened. The simple truth, however, is that markets just crash. These events are rare enough to be outliers, and rarely ever more than just outliers. However, each iteration is substantial enough to drive innumerable narratives that explain them away. I think this is done in part to satiate our fears: is it okay to remain in the market?
Stepping back from the market for a moment: in a population of millions, a few exceptionally large people will do nothing to alter the average. A few exceptionally tall people will do nothing to alter the average. The outliers are not so extreme as to shift the center. These outliers themselves are not Black Swans; their existence in the population is inconsequential.
Stepping back into the market: despite decades of economic theories that suggest markets correct themselves, there’s still palpable terror around markets crashing. Which underscores the question that if we theorize that markets correct themselves, why are so many economists and market analysts shocked when it actually happens? On a long enough timeline, a market crash is of little consequence to the market at large. Most of these occurrences are just outliers, events that are simply not big enough to qualify as a Black Swan event.
This is why the long game is important. BTC may have dropped to just over half its price, but it’s STILL worth more than double what it was worth at the beginning of December 2020. Same with ETH. This is why crypto maximalists repeat the same mantra: HODL. Markets rise and dive, and it’s no different in the cryptoverse than it is in the S&P 500.
Now, at the risk of creating my own narrative around this crash: we knew the market was growing too big too fast. We knew a correction was imminent. We just didn’t know how or when. And given historical data around the rise of the markets, this crash was unexpected. Unexpected, yet expected, to some degree. But why now? Who knows? Lots of people are coming to their own conclusions about it and producing narratives around these conclusions. And these narratives are a dime a dozen. Who you read and listen to will give you their own story. But in the end, they’re just stories.
What I find most entertaining are the groups of people crying for regulation in the cryptoverse, as if regulation would keep the market from crashing again like this. Except, we have numerous examples of highly regulated markets that still fucking crash. In the end, these are just more narratives.
The market’s still the market, your crypto’s still your crypto, the DAOs are still DAOing, God is in His Heaven and all is right with the world.
Sometimes, shit just happens.