Market Thinking

making sense of the narrative

Tokens and Tinker Bell Economics

With my surname, I really had to post this link from the Streetwise Professor Blog about Tinker Bell Economics. But mainly I have highlighted it because it’s really good.

token valuation relies on magic–belief, actually. That is, tokens are valuable if people believe they are valuable–that is, if they have trust in their value. Furthermore, there is a sort of information cascade logic that can create market value: if people see that a token sells at a positive price–especially if it sells at a very large positive price–and they observe that supposedly smart people hold it, they conclude it must have some intrinsic value. So they pile in, increasing the value, validating beliefs, and extending the information cascade.

But this is Tinker Bell economics. If people stop believing, Tinker Bell dies.

Quoted from the Streetwise Professor blog.

Among other points he makes, the fact that the system was overly vertically integrated with an exchange acting as broker dealer and the similarities with the collapse of MF Global whose CEO, former CEO of Goldmans turned New Jersey Governor John Corzine, was evidently an amateur by comparison – even if both dreamed of buying Goldman Sachs.

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