Crypto billionaires and big fool theory

Mukesh Ambani was not the richest man in Asia in the list of billionaires recently published by Bloomberg, but Changpeng Shao, the founder of the cryptocurrency exchange Binance. Brian Armstrong, founder of the cryptocurrency exchange Coinbase, also made the list with a tenth of its value.

The cryptocurrency exchange for cryptocurrencies is similar to the stock exchange for stock markets. About 250 cryptocurrencies are traded on cryptocurrency exchanges such as Binans. His fortune is estimated at $ 96 billion (approximately $ 7.20 trillion), with Changpeng Shao owning 90% of Binance. Moreover, the value of the various cryptocurrencies in his possession is beyond this.

Binance and Coinbase

Globally, cryptocurrency trading is largely in Binans. Binans' turnover in 2021 is estimated at $ 20 billion, or Rs 1.5 lakh crore. Coinbase, which ranks second, has a turnover of only a third. Binance is not listed on the stock exchange, but Coinbase is a listed company. So the turnover and value of the account will be twice as much as the coinbase - this is how the value of the Bloomberg account is calculated.

Currency and Cryptocurrency

Currencies are fixed in value. The government and the central bank have various mechanisms in place to maintain the value of a country's currency. But the value of cryptocurrencies is changing by the minute / hour like the price of a stock. Moreover, there are more than 6,000 cryptocurrencies currently in existence. It is unpredictable which of these will survive and which will end

A share of a company is a portion of the ownership of that company. That is, the shareholder is entitled to the assets and profits of that company. From this comes the value of the stock. The lender is entitled to the borrower's income and assets. This is how bonds come to be valued.

Unanswered question

But cryptocurrencies have no claim on anyone's assets, income, or profits. Cannot be used as currency due to fluctuation in value. And where does their value come from is an unanswered question. The value of exchanges trading in cryptocurrencies that are questionable even in value is what made Binance / Coinbase founders billionaires. Economists explain such phenomena through an interesting theory.

Who is the big fool?

The greater fool theory is the theory that describes the speculators in the markets where large-scale speculation takes place. The big fool's theory is that he expects a bigger fool to buy the stocks / bonds / currencies he buys at an unjustifiable price. But more often than not, such people come to the realization that the fool they are waiting for is no other than themselves, and that the wait is long overdue. By then, the value of the stock / debenture / currency in his possession will have plummeted.

The last example of this theory was widely marketed during the 2008 global financial crisis. Will cryptocurrencies be the next example of this? Let's wait and see.