Bitcoin's New High – Are You Being Played?

The air is thick with excitement. Bitcoin's hit a new high, surpassing $102,000. Ethereum’s on fire, memecoins are going nuclear – it’s déjà vu 2021 all over again. It’s all the rage, we hear it from our Uber drivers to our financially intelligent appearing friends and neighbors. Before you jump headfirst into the crypto pool, take a deep breath and ask yourself: are you sure you're not just being played?

Is This Time Really Different?

We've seen this movie before. Get-rich-quick schemes lure even more souls. If fear of missing out (Fomo) sends prices too high, eventually the crash is unavoidable. Bitcoin's rise isn't happening in a vacuum. Global crypto market cap has recently skyrocketed over $3.26 trillion. Much of this growth can be attributed to the temptation of instant profit and the siren song of decentralized finance. Yet behind this glossy facade of innovation is a confusing maze of capital market psychology, and therein lies the peril.

Take the idea known as the “greater fool theory.” Rather, it implies that you can make money by purchasing assets that are too expensive, wagering that someone else will eventually pay a higher price for them. This is a risky and dangerous game, and it’s exactly the type of mentality that drives speculative bubbles. You might be betting on the next person’s irrationality, but you’re betting on the next person’s irrationality, not on the intrinsic value of the asset. And when the music stops and there’s no more of this “greater fool” nonsense, you’re the one holding the bag.

Think of the dot-com bubble. Pets.com, anyone? Amazing valuations created largely on market buzz and little else. After all, the housing crisis of 2008 was driven by subprime mortgages. Too many Americans wrongly assumed that home values were destined to be appreciating assets. History never repeats itself verbatim, but it does tend to rhyme.

Greed, Fear, and the Media Hype Machine

The crypto market is just a perfect petri dish for psychological biases. Confirmation bias leads investors to seek out data that validates their existing opinions. So they might cheerlead predictions such as “Bitcoin is going to $1 million!” and ignore all contradictory proof. The bandwagon effect encourages individuals to follow the herd. They frequently do so without a complete grasp of what exactly they are investing in. Anchoring bias causes people to rely too heavily on initial pieces of information (e.g., "I bought Bitcoin at $20,000, so it's a steal at $100,000!").

Then there's the media. Each and every one of those headlines loud proclamations about the boom, the bust, the new paradigm, the next big thing, the disruptive technology. Yet how many of these stories focus on the risks, the potential negative impacts, the environmental cost? The media loves the opportunity to be sensationalistic, and crypto gives them all the more incentive to do so. They’re spinning a spellbinding story tailored exactly to your interests. This tale is designed to elicit intense emotions, primarily avarice and trepidation.

"As behavioral economist, Daniel Kahneman, once said (not about Crypto, but the principle holds true): "We are prone to overestimate how much we understand about the world and to underestimate the role of chance in events."

Who Really Benefits From This Boom?

Let's be honest: while some individuals may see significant gains, the crypto boom isn't exactly leveling the playing field. Early adopters, venture capitalists, and large scale institutional investors are reaping a lion’s share of the gains from the current rally. They were able to get in early and have the indicates survive the volatility. On top of that, their clout gives them the ability to control the story.

In the meantime, small mom-and-pop investors are the ones left holding the bag when the market inevitably crashes. The long-term environmental effects of Bitcoin mining is another major concern. The energy-intensive, high-temperature process puts carbon into the supply chain and worsens climate change. This is deeper than dollars and cents — our planet’s future is at stake.

And what about the wealth gap? Crypto prices are going through the roof!! Consequently, asset owners are seeing their wealth soar, while everybody else who doesn’t have investments is falling further behind. Is this really the future we want? A world in which the few who get the new technology get fabulously wealthy and everyone else can barely afford to get by at best?

Speculation mounts as the SEC might allow Ethereum ETF staking, possibly after a meeting with BlackRock. Should we be confident that these institutions will always act with our best interests in mind?

Before you buy into the hype, ask yourself: who truly benefits from this rally? And so we have to ask, is it really about democratizing finance? Or is it just another plan for the rich to get richer and everybody else to get poorer?

Don't let FOMO cloud your judgment. Just do your homework, know what you’re getting into, know the risks, and invest wisely. Takeaway – As always, if it sounds too good to be true, it probably is.

While the crypto market may provide exhilarating opportunities, I’d argue it’s filled with perilous risks. Don’t allow the excitement and the FOMO to lead you astray. So be skeptical, be smart, and most of all, keep yourself from getting played.

The crypto market might offer exciting opportunities, but it also comes with significant risks. Don't let the hype and the fear of missing out cloud your judgment. Be skeptical, be informed, and most importantly, protect yourself from being played.