The Influence of the First Principles of Crypto on Investor Behaviour: An Economic Perspective

Throughout the tumultuous course of financial history, numerous instances have highlighted the unwavering tenacity of principled investors amidst economic turbulence. These five key periods illustrate the significance of adhering to core investment principles, irrespective of market fluctuations. The South Sea Bubble, the Great Depression, the Dot-Com Bubble, the Global Financial Crisis, and the ongoing Cryptocurrency Fluctuations each provide a unique stage for the drama of steadfast investment. These episodes underscore the importance of maintaining investment discipline in navigating the volatile landscapes of their respective eras.

1. The South Sea Bubble (1720): This was one of the earliest examples of a speculative bubble. While many investors were swayed by the hype around the South Sea Company's inflated promises, some conservative investors stayed true to their fundamental principles of investment and did not invest in the company. Those who held fast to these principles avoided the subsequent crash and financial loss.

2. The Great Depression (1929): After the stock market crash, which led to a long-term economic downturn, many investors panicked. However, some, like Benjamin Graham, adhered to their principles of value investing. Graham focused on fundamental security analysis, which allowed him to successfully navigate this challenging period.

3. The Dot-Com Bubble (1995-2001): Many investors were attracted by the potential of internet-based companies and overlooked traditional investing principles. However, value-oriented investors like Warren Buffet abstained from tech stocks, sticking to their principles of investing in companies with solid fundamentals and undervaluation. When the bubble burst, these investors were shielded from the worst effects of the crash.

4. The Global Financial Crisis (2007-2008): Some investors maintained their principles and strategies despite the downturn. For example, hedge fund manager John Paulson foresaw the housing market crash and profited hugely from his investments in credit default swaps.

5. Cryptocurrency Fluctuations (2017-Present): The world of cryptocurrencies like Bitcoin and Ethereum is notoriously volatile. Throughout this period, some investors have stuck firmly to their investment principles, like buying and holding based on the fundamental value and potential of blockchain technology, regardless of dramatic price fluctuations. These investors have often fared better over the long term compared to those who tried to time the market or react to short-term price movements.

In each of these cases, maintaining core investment principles, even in the face of market volatility or dramatic shifts in price, proved beneficial for those investors who could avoid panic and stick to their strategies.

The world of economics, notably in the sphere of investment, is increasingly influenced by the realm of cryptocurrency. Within this sphere, a vital concept known as the First Principles of Crypto (FPOC) delineates the fundamental rules and beliefs governing the crypto-economic system. The FPOC acts as a guiding principle for investors, yet its relevance is often misconstrued as being only significant during periods of high prices.

It is essential to dissect this assertion, as the assertion raises an important question regarding the behavior of the investing person in economics. Does the significance of the FPOC wane when the price is not at a peak?

Inherent in the principles of economics is the idea that an informed investor considers all aspects of an investment opportunity before committing resources. This thorough consideration includes understanding the fundamental principles underlying the investment. In the case of cryptocurrency, these principles are encompassed by the FPOC. Therefore, a rational investor, grounded in economic reasoning, would not disregard these principles during periods of low or stagnant crypto prices. Instead, the FPOC should form an integral part of their investment strategy at all times.

When the prices are high, it is easy for the relevance of the FPOC to be underscored, as investors may be more inclined to adhere strictly to the principles in anticipation of continued positive returns. However, the true test of an investor's adherence to the FPOC, and arguably where they are most crucial, is during times of price volatility or downturns. At such times, investors might be tempted to panic sell or make decisions based on market sentiment rather than the foundational tenets of their investment, such as the FPOC. This behaviour can lead to poor investment outcomes and deviate from rational economic behaviour. Therefore, the significance of the FPOC should remain constant, regardless of price fluctuations.

The First Principles of Crypto matter in all market conditions, not only when the price is high. From an economic perspective, consistent application of these principles, as part of a well-considered investment strategy, contributes to the behaviour of a rational investor. This steadfast approach can lead to better investment decisions and outcomes in the dynamic and often volatile world of cryptocurrency.