Bill Gates says crypto and NFTs are 100% based on Greater Fool Theory. What does it mean?

Bill Gates says that cryptocurrencies and NFTs are based on the greater fool theory and he prefers old-fashioned investments. Besides, it has not been a good year for the crypto world. 

Gates was speaking at a conference on climate change when he shared his thoughts on the cryptocurrencies and NFT craze. 

• He said that the digital assets are based on 100% greater fool theory and have no real-valued foundations. 
• Mocking the Bored Ape Yacht Club monkey NFTs, he joked that the expensive digital images of monkeys are going to change the world or improve the world immensely. 
• While he said that he’s not a crypto minimalist or maximalist, he believes in old-fashioned investing – in asset classes like a farm that gives an output or a company that makes a product. 

But what is the Greater Fool Theory? 

In the vocabulary of stock markets, NASDAQ defines the Greater Fool Theory as “an investment notion that even when a stock is fully valued by conventional standards, there is room for upward movement because there are enough buyers to push prices farther upward purely on speculation or hype.”

In simpler terms, you will invest in a stock or a crypto coin based on the hype believing that other investors will buy it from you at a higher price. However, you miss out on reading whether the crypto or the stock has any foundational value. 

For example, in 2008, the US suffered from a housing bubble because the investments were based on the Greater Fool Theory. Home buyers took hefty mortgages from banks to buy houses in the belief that they would sell at a greater price in the future. However, in the “future” the owners of the houses with mortgages around their necks did not find any buyers.

Such stocks and crypto investments are risky because it could turn out that you are the greater fool in the end than someone else. 

The recent crypto crashes:   

1. In June 2022, cryptocurrency market crashed to another low as the global cap shrunk below $1 trillion. The immediate cause is said to be a pausing of withdrawal by crypto lender Celsius and a massive sell-off by investors spooked by inflation. 
2. Just a few months ago, Luna cryptocurrency, the UST stable coin crashed wiping off over $17 billion in value. 

Do you think you can trust cryptocurrencies now?