Retail investors can also end up in digital echo chambers and fall prey to confirmation bias. “It can affect the information you see. A Tesla bull may only see positive news about the company whereas on the same day a Tesla bear’s news feed will tend to have much more negative news in it,” says Tony Cookson, an associate professor of finance at the Leeds School of Business, University of Colorado, who has researched this phenomenon. “It’s financially costly to selectively read things that reinforce your existing views.”
Moreover, some of the year’s defining financial obsessions pretend to be egalitarian and freewheeling but at their core are highly dogmatic. Don’t just take my word for it. “These days even the most modest critique of cryptocurrency will draw smears from the powerful figures in control of the industry and the ire of retail investors who they’ve sold the false promise of one day being a fellow billionaire. Good-faith debate is near impossible,” the co-creator of Dogecoin, Jackson Palmer complained in July. (Dogecoin is a joke cryptocurrency that became a $23 billion meme sensation when Musk touted it to his followers.) Palmer wasn’t done:
True believers seek to reinforce these financial echo chambers, by attacking even mild “fear, uncertainty and doubt” (FUD). And rather than engage with them, they often block out or cancel critics.
There are guides on how to troll “no-coiner” journalists like me — “have fun staying poor!” is a common refrain — and they emphasize the importance of getting information only from like-minded crypto people.
In this climate, scams and misinformation proliferate. New coins are pumped and then dumped by their creators. Retail investors are encouraged to HODL (never sell) and have “diamond hands,” even though if the price collapses they’ll be left holding the bag. “It’s typical of mania environments that the crowd is no longer capable of distinguishing the predators,” says Peter Atwater, president at Financial Insyghts LLC and an expert in social psychology.
A common enemy, real or imagined, disciplines the herd so investors don’t get bored and take their money elsewhere.
Bitcoin “maximalists” argue all other coins are inferior: In their laser-eyed view of things, central bank money-printing will end in ruin and Bitcoin is destined to become a new global reserve currency.
Goldbugs have been obsessed with sound money for decades, but their philosophy has now been more effectively weaponized. With crypto “we’ve decided to do the most American thing ever, to commoditize our rage at the financial system into a financial product,” writes the software engineer and crypto critic Stephen Diehl.