How Financial Markets React To New Technology
Financial markets don’t always react well to new technologies. These technologies are seen as volatile and risky investments, which is why maturing technologies are generally less volatile. However, there's a lot more to the story than that.
Cryptocurrencies rose and fell dramatically in value several times in their short history. While some are considering this market (crypto market) as very risky, others see it as an opportunity to make an investment that can’t be missed.
Financial Markets React To New Technologies, Both Positively And NegativelyFinancial markets are volatile, and they react to new technologies. This can be positive or negative:
Positively, new technologies can help solve problems that have been around for a long time. The internet was one such technology; it has made it much easier to find information about financial products and services, such as mutual funds and ETFs (exchange-traded funds).
When Robinhood came along, it gamified how we invest in these markets and also made it easily accessible to the general public.
Negatively, some investments become overhyped because of their potential impact on market prices—a bubble will form before the bubble bursts. This happens when there's no physical evidence that something works well enough yet—it just looks good on paper because everyone thinks this thing is going up forever but then reality sets in sooner rather than later when people start losing money from investing heavily into something like an ICO (initial coin offering).
New Technologies Are Seen As Volatile And Risky InvestmentsThe dot-com bubble and bust is an example of how new technologies in the late 1990s were overhyped. In this case, companies that had no revenue were valued at billions of dollars. This led to many false assumptions about their future performance, which caused investors to lose confidence in those firms and drove them down into bankruptcy.
New technologies can also be disruptive, which means they can have a significant impact on existing industries or companies. For example, the internet has been a major disruptor in many industries from media to retailing to transportation services (think Uber).
Cryptocurrencies Rose and Fell Dramatically In Value Several Times In Their Short HistoryCryptocurrencies have been around for less than a decade, but they've already had an impact on the world.
Cryptocurrencies—such as bitcoin and ethereum—are volatile and risky investments. The price of these digital currencies can rise or fall dramatically in value. One of the reasons is that these investments are still considered highly speculative because they haven’t been fully adopted or reach mainstream yet.
There's no actual guarantee that cryptocurrency will continue to be used as money in the future (and if it does become mainstream currency, how long would you need to hold onto them?).
The hype surrounding cryptocurrencies: Back in 2017, during the crypto craze, more than $1.5 billion was invested into initial coin offerings (ICOs), which are fundraising efforts similar to venture capital firms' private equity investments but instead use blockchain technology instead of corporate shares of stock (like IPOs).
However this technology has yet to prove itself out; while some companies did successfully raised money through ICOs— Block.one a blockchain startup, raised 185 million USD in just five days after issuing its ICO on the EOS token—others have failed spectacularly; just look at MtGox’s collapse in 2014 after losing 90%+ worth of its cryptocurrency holdings due to a bug within its exchange software.
Look For Opportunities In The Technology Space, But Exercise CautionThe technology space is a great place to look for opportunities, this is because they have the biggest ROI, but it is also risky. Be aware of the risks involved with new technologies and make sure that you are comfortable with your investment before diving in headfirst.
In general, there will always be winners and losers in the world of technology; however, some companies have been able to make profits from their investments while others have failed miserably (and sometimes even gone bankrupt).
In ConclusionAll in all, the financial markets are very reactive to new technologies. While it’s important to be skeptical of what you hear about a new technology, it’s also a good practice to look out for opportunities when they arise.
This is especially true if you decide that your investment thesis will rely on any kind of disruptive technology (like myself) — even one as volatile as cryptocurrencies.
What’s more preferable, a 100X unguaranteed return or a 10X guaranteed return?
Thanks For Reading!
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