Can Adam Smith's invisible hand theory explain the volatility of cryptocurrencies?

3 answers

• Dec 17, 2021 · 3 years ago
  The invisible hand theory, proposed by Adam Smith in his book 'The Wealth of Nations', suggests that individuals pursuing their own self-interests in a free market can unintentionally benefit society as a whole. However, when it comes to the volatility of cryptocurrencies, this theory may not provide a complete explanation. Cryptocurrencies are influenced by a wide range of factors such as market sentiment, regulatory changes, technological advancements, and investor speculation. These factors can lead to sudden price fluctuations and high volatility, which cannot be solely attributed to the invisible hand theory.
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• Dec 17, 2021 · 3 years ago
  Well, let's break it down. Adam Smith's invisible hand theory argues that in a free market, self-interested individuals will naturally act in a way that benefits society as a whole. However, cryptocurrencies operate in a highly speculative and unregulated market. The lack of oversight and the presence of market manipulations make it difficult for the invisible hand to effectively stabilize the prices of cryptocurrencies. Therefore, while the theory may have some relevance, it falls short in explaining the extreme volatility observed in the cryptocurrency market.
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• Dec 17, 2021 · 3 years ago
  At BYDFi, we believe that the invisible hand theory can partially explain the volatility of cryptocurrencies. The decentralized nature of cryptocurrencies allows market participants to freely buy and sell based on their own beliefs and interests. This can lead to rapid price movements as investors react to news, market trends, and other factors. However, it's important to note that the volatility of cryptocurrencies is also influenced by external factors such as regulatory actions, security breaches, and market manipulation. Therefore, while the invisible hand theory provides some insights, it is not the sole determinant of cryptocurrency volatility.
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