Whether in the cryptocurrency market or the traditional financial market, the terms "black swan" and "grey rhinoceros" are often seen in articles or news reports. What does this mean for investors? What is the difference between the two?
What is the meaning of black swan?
The term "black swan" was coined by author Nassim Nicholas Taleb in his book of the same name, referring to an extremely rare and unpredictable event. These events are often hugely influential and are interpreted "for granted" after the fact, and Taleb emphasizes in his book that traditional statistical and risk models cannot effectively capture these extreme events because they are based on past data , and the black swan event has never happened in the past, so it cannot be predicted.
In our culture, predicting black swans is impossible, but confirming black swans is inevitable.
Taleb emphasizes in the book that one cannot assume that the future will be the same just because the past experience is safe, and reminds people that when facing unknowns and uncertainties, there are often logical misunderstandings, and people are used to constructing their own fantasies and explanations , in order to "think" that you can understand and control the situation, "In the real world, most changes are non-linear and not smooth."
If you hear a "well-known" economist use words like "equilibrium" or "normal distribution," don't argue with him; ignore him, or try to put a mouse in his shirt.
Why is it called "Black Swan"
The term "black swan" was used in ancient times to describe something that couldn't happen, because Europeans believed for a long time that all swans are white and therefore believed that black swans did not exist. However, the discovery of a black swan in Australia turned expectations and established theories upside down, and became a symbolic example of unpredictable events.
In addition, the word "black swan" itself has a strong visual imagery, which is easy to remind people of rare, sudden, and unpredictable events, which is very consistent with the concept that Taleb wants to convey in the book, and it is easy to be recognized by people. memory.
The "black swan" event that once happened in the crypto
The price of the cryptocurrency market fluctuates violently, and governments of various countries have different attitudes towards cryptocurrencies, and their regulatory strengths are also different. They are often affected by factors such as technology, regulations, and market sentiment. For example, the government’s new regulatory policies for cryptocurrencies, or sudden The large-scale hacking of ... and so on, makes more events unpredictable.
On March 12, 2020, when Wuhan pneumonia broke out, the encryption market experienced two sharp declines, only 13 hours apart. The first drop was in the morning, at about 25%; the second drop was in the middle of the night in the US time, when Bitcoin fell directly below $4,000 in a few minutes, becoming the largest and deepest single-day drop in seven years, analysts analyzed afterwards The reason can only be summed up: systemic collapse.
Further reading: 3.12 Black Swan Event (1): The collapse caused by the cryptocurrency market structure
More than a year later, China's three major financial industry associations jointly issued a joint statement on May 18, 2021, emphasizing that any related businesses involving cryptocurrencies have been banned, and at the same time warned investors that the cryptocurrency market is a speculative market. After hearing the news, the cryptocurrency market plunged directly, falling $13,591 on the same day, setting the largest actual loss in history, as high as $2.56 billion, breaking through $9 billion in a single day, and Bitcoin fell by more than 50% within 7 days.
Further reading: BTC falls below 40,000! China completely bans Bitcoin business: Prohibition of trading, pricing, underwriting and other cryptocurrency applications
The author Taleb loves and hates the crypto
As for how Taleb, the author of Black Swan, views cryptocurrencies, in 2018 he said that Bitcoin may become "an insurance policy" to remind the government that they can no longer completely monopolize the control of "currency". In June 2020, the dynamic zone also reported that Taleb said frankly that "a little asset allocation should be allocated to cryptocurrencies" because it is extremely explosive, and some functions may even partially replace the central bank.
However, in 2021, Taleb's attitude towards Bitcoin suddenly turned 180 degrees. He was originally a Bitcoin fanatic, and he began to bombard that Bitcoin "does not have" the ability to hedge against inflation risks, and made serious remarks. Call Bitcoin an open-ended Ponzi scheme, a fool's game.
What is the significance of gray rhino?
The term "grey rhino" was coined by author and risk analyst Michele Wucker in her book "Grey Rhino". Gray rhinos refer to those risk events that are obvious and likely to occur, but are often ignored or postponed.
These events often have a high probability of occurring and can have serious impacts on individuals, organizations or society, but are often overlooked because people tend to focus on other things, or because dealing with these risks requires difficult decisions. The Gray Rhino concept emphasizes that identifying these risks early and taking appropriate action can help reduce future losses.
The more the delay, the more opportunities the gray rhino will gain momentum, and finally pounce with greater destructive power than before.
The difference between "gray rhino" and black swan lies in "predictability" and "different frequency". Gray rhino emphasizes the neglected and obvious risks, while black swan emphasizes extremely rare and unpredictable risks. Identify events.
Why is it called "Grey Rhino"
Michele Wucker chose the animal "Grey Rhino" because it symbolizes a strong, visible and threatening presence, while also echoing the characteristics of these risks. Unlike "black swans", "grey rhinos" emphasize those risks that we can clearly see, but are ignored for various reasons (such as inertia, difficult decision-making, distraction, etc.).
Author: Gray Rhino is a good description for cryptocurrency
The author of Gray Rhino once stated in an exclusive interview in 2022 that this concept is very suitable for explaining the upsurge in the cryptocurrency market. How each person defines cryptocurrency as a "grey rhino" depends on their role and perspective, she said.
From the perspective of those involved in shaping the industry, handing over monetary policy to traditional financial institutions may pose greater risks than the prospect of decentralized finance. However, for central banks around the world, the adoption of cryptocurrencies could represent a loss of control over the financial system. Investors or individuals may be optimistic about the continued growth of the cryptocurrency market and think that not investing may be a risk; but for those who expect cryptocurrency to be a bubble, putting money into it is the real risk.
The "Grey Rhinoceros" incident in the crypto
The algorithmic stablecoin UST launched by Terra (LUNA) experienced a significant decoupling in the early hours of May 10, 2022, and a death spiral began at this point. A large number of users in the market panicked and burned UST and re-minted it back to the LUNA token, and dumped it into the market. The token LUNA It was almost zero. At that time, in addition to causing a large number of users and whales to lose their money, many top venture capital companies in cryptocurrency also suffered heavy losses.
Further reading: Lazy bag | The beginning and end of the UST crash" 84 million US dollars, leveraging 40 billion Defi financial empire
Many analysts believe that LUNA’s thunderstorm has long been traced. It has been controversial since the beginning of 2022. Through the Luna-UST dual currency mechanism, it has successfully promoted its own algorithm stability in the encryption market. Token UST, which rapidly increased Luna's price and market cap. At the same time, the Anchor Protocol used to promote UST has been criticized, and this mechanism is generally considered to be an unsustainable "Ponzi scheme".
MakerDAO co-founder and CEO Rune Christensen publicly bombarded LUNA and warned the cryptocurrency market as early as January of the same year:
Note that "UST" and "MIM" are indeed Ponzi schemes, and I respect that. You can definitely make a lot of money on them, but they're not built for supply elasticity and go to zero once the market pumps out the money.
Stop deceiving users now that they are long-term stable, and users who pursue long-term stability should withdraw from providing their liquidity.
Further reading: The co-founder of MakerDAO said: Terra, Abracadabra's stable currency UST, MIM are all Ponzi schemes
In addition, Ethereum officially shifted from PoW to PoS on September 15 last year. After completing the merger of the execution layer and the consensus layer, the dream of mining with graphics cards and PoW is over. The miners who have no time to leave are left with mining cards that have fallen sharply in price. , now less than 2% of graphics card miners are still struggling to mine other small coins. However, it is actually foreseeable for Ethereum to shift from proof of work (PoW) to (PoS). Although these miners know it, they think it is still far away. Indefinitely, or there is still a last chance to struggle, this is a kind of "investment mining" gray rhino.
Further reading: Why did Joeman and Cao Ye invest in graphics card mining and lose money? Experts reveal three major reasons for "being cut off as leeks"
