A key issue in determining the value of stuff is the common delusion that almost all of us have about the future. It does not matter if we consult the stars or a supercomputer, our ability to predict the future is limited. It is not a coincidence that Algo-trading excels in short-term transactions. 

Let’s bring this discussion down to earth. Say that I spent 2.2 hrs editing and writing this piece. And say that the cost of my effort is therefore 110$ based on a rate of 50$ an hour. When I mint this article, I assign it the value of 110$. That is not the future value of it. It is the cost. Now, there are three types of people (bots and AI included) who would buy it. Type A is someone who actually reads it and thinks it is a good article, with interesting ideas that could be applied in various value-creating efforts which is why its future value exceeds its cost-based current value. In fact, even if this turns out to be false, the value which that person paid for has already been provided. Type B is someone who buys it because they think there’s someone else out there who would pay more for it. Type C is anyone who belongs to both type A and type B. The reality, not only in crypto markets, is that the vast majority of transactions are done with the type B motivation. This means that type A and C are insignificant in determining the market value of stuff.

Simply put, the market value of an asset is [probably] always determined by the hope that there is someone else out there that thinks that asset is undervalued [by at least one more trade]. And that hope stems from the delusion that we are apt in predicting the future.

Depressing stuff, I know. It means that all the financial markets have two layers. The first is mostly real and is based on tangible, measurable value, or at least cost. On top of that layer there’s a Ponzi-like game. Since almost no one cares anymore about the underlying value, it is all but impossible to say how much of the financial markets is “Luft Gesheft” and how much is solid.