Have you heard of the “Greater Fool Theory”? The greater fool theory argues that prices go up because people can sell overpriced goods to a “greater fool” until there are no greater fools left. Once no more fools are left it starts the sell-off process. When in practice, the idea of due diligence is unnecessary because the argument is that even if something is of poor quality there is a greater fool waiting and willing to buy under the expectation that another greater fool can be the victim of their flip.
The housing market crash of 2008 is a perfect example of the Greater Fool Theory in action. At the height of the housing bubble, people were buying homes not because they believed them to be undervalued, but because they believed that prices would continue to increase and that they would be able to sell their homes for an even higher price. I understand that’s a dramatic oversimplification of all the factors that went into the 2008 housing market crash, but I digress. Of course, we all know what happened next; prices stopped going up, then they started going down, and the economy went into the toilet…
The same can be said for any number of other speculative bubbles throughout history, including the dot-com bubble of the late 1990s and early 2000s and the tulip mania bubble of 1637. In each case, people were buying assets not because they believed them to be undervalued, but because they thought that prices would continue to increase.
If you are reading this and thinking to yourself that this sounds very familiar, you are right. This is exactly what happened in the speculative bubble of NFTs and ultimately one of the driving forces to the NFT winter we are all experiencing.
The data is out, and it’s confirmed that 99% of NFT projects fail. The concept of the Greater Fool Theory is propelled because many NFT veterans are looking to derisk their positions as fast as possible. Take their profits and trade them into blue chip projects. A blue-chip project is generally large, well funded, and has a proven track record of successful operations. On ETH think Yuga, Doodles, and Cool Cats. For SOL think DeGods, Degenerate Ape Academy, and Solana Monkey Business.
The irony of the Greater Fool Theory is that it’s counterintuitive to the larger ambitions of NFTs and web3. Many preach about onboarding the next 100M users yet, they are busy dumping their bags on them. The new user walks away feeling like it’s all a scam. A shift in trading has to occur, and in how NFTs are used. Lastly, the market needs to mature. I do believe that this NFT winter can catalyze maturation. The expression “builders build in the bear” is the marching song for everyone, for right now…
How will NFTs change in the future? How will trading shift in the future?
The most widely adopted use case of crypto has been NFTs. This is why my convictions have not changed. So how do I imagine trading will change in the future? To answer, we first need to look at where development is occurring.
I think the next round of projects and people are focused on solving key marketplace challenges around the user experience like; fraud prevention, chain stability & security, wallets, and analytical tools. These innovations will usher in a new level of symmetry into the marketplace, ultimately creating a win for everyone. New users ideally won’t be left feeling hopeless and overmatched by crypto natives.
The next layer of innovation will be around gaming. In the bull cycle, everyone believed that Joe somebody was capable of building a game. The reality is most are not. Lesson learned. However, few have stuck it out through the last bull cycle that are on the cusp of disrupting gaming. Companies like ImmutableX and B&J Studios. Concepts like digital ownership and interoperability are leading the charge.
Ask anyone who has been playing an RPG for over 10 years and wakes up one morning to find out that the server is shutting down. The hours and hours of time, resources, connections, and communities that formed while playing that game are all wiped out. Plus you don’t have any say in the matter. This is where digital ownership can be a saving grace.
As I previously mentioned in the What are dynamic NFTs article. I feel experiences will be one of the next frontiers from fandom to private get-togethers and anything in between. I have repeatedly said in the post-COVID world that movie theaters need to transition to experiences, especially after the introduction of “renting” an in-theater feature film for 24 hours at home for less than the cost of taking a group of 4 to the movies.
Dane Cook said it best “Cinematic Adventure”, and now we can replicate the existing “cinematic adventure” at home from the comfort of our couches. The value prop for going to the movies isn’t strong enough anymore. However, if theaters adopted fan experiences this would be hard to replicate at home.
Imagine a whole theater is decked out in a Harry Potter theme, and I am not just talking about cardboard cutouts. Customers and staff dressed up, the music playing in the lobby, the ambiance once you walk in. Walking away with collectibles you can only get while you are there. Plus the moments that can be immortalized on-chain. Now you are building a moat between at-home versus in-theater.
The bull cases for these types of innovation create higher conviction in the people holding the assets and collectibles. With higher confidence, and less market fear the incentive to hold or “diamond hand” increases significantly. The reality is, you are part of the real thing rather than the fugazi.
Your approach to trading fundamentally changes, placing emphasis on due diligence. Finding the best value entry point into projects or collectibles so you can be a part of the community, tool, protocol, or game. Not just being early so you can dump on the next greater fool. The question shifts to, how do you find the best entry, and what resources are out there to answer that question? At Beyond Rarity, we are working to solve that problem every day. Find out how here and if you are interested in beta testing our solution submit your email info below.
Sadly, a lot has to be overcome, thanks to pump-n-dump influencers who treated their followers like greater fools. Greed is a nasty SOB, it shows up in the ugliest of forms. Thankfully this bear cycle is weeding the garden, the euphoria has faded, and it’s back to fundamentals that build viable businesses out of spectacular ideas. We’ll be serving up the hot deals when the time comes, and you better believe that very talented people are working day and night to bring forward innovative ideas that our simple minds haven’t even begun to process. Maybe not you but at least my simple mind hasn’t been able to process them yet.
If you enjoyed this article, please take a moment to give it a clap, and if you’d like to go down the rabbit hole I highly recommend taking a peep at the articles below.