What's that? a fundamental investing question? TIME FOR STOCK CRAZINESS 101!
Burton Malkiel uses the two terms "firm foundation theory" and "castle in the air theory" in his seminal book A Random Walk Down Wall Street to describe two competing understandings of basic investment. "Castle in the air theory" is generally blamed on none other than John Maynard Keynes, but I can't find any source. Keynes is generally blamed for a lot of great quotes, such as "the market can remain irrational longer than you can remain solvent" (more on that in a minute). "Firm foundation theory" is Malkiel's renaming of Intrinsic Value Theory, which goes back to Adam Smith and Karl Marx.
The reality is that these theories describe economic behavior, not psychological behavior, and both theories have their proponents.
An example of Intrinsic Value Theory is that GM stock is worth about $40 a share because it pays 30-40 cents a share, four quarters a year, sunrise sunset. Hold GM for a hundred quarters at $40 and it has paid for itself even if it never moves. An example of castle-in-the-air theory (I much prefer the term "greater fool theory" (see below)) is that Tesla stock is worth $326 a share today because tomorrow it will be worth $400. Hold Tesla for three weeks and sell it and you've made 25%.
Unless you don't.
Intrinsic Value Theory holds that Bitcoin has questionable intrinsic value. If you delve into it you observe that it's a useful black market trade good for transacting and holding value outside the possibilities of regulation or policing. At 288 kW/h per transaction and climbing, it has no intrinsic value as a medium of regular exchange.
Greater Fool Theory holds that Bitcoin is absolutely worth $17k today because some schlub is going to buy it for $19k tomorrow.
Unless he doesn't.
The advantage of Intrinsic Value Theory is you can calculate it. It's based on numbers and math and charts and truth. The disadvantage of Intrinsic Value Theory is it would have told you only a moron pays $1000 for BTC at the beginning of the year because eventually people will figure out it's worthless.
The advantage of Greater Fool Theory is people are so much stupider with money than you can really conceive, probably because we so rarely talk about it in frank, honest ways we can all learn from. Failure is a source of shame and rarely discussed; we all point at the Lehman brothers and LTCMs of the world as if to imply they failed because they weren't virtuous enough, rather than that their number came up. As such, markets generally will pile on for much longer than really makes sense, generally because the people with the most sense have exited and leave a feeding frenzy of late-arrivers and neophytes in their wake. The disadvantage of Greater Fool Theory is you're banking on the predictability of a stampede.
So. Not a bad time to cash out? Shit could go to $30k next week. Shit could go to $1k.
The market can remain irrational longer than you can remain solvent.
- Probably not John Maynard Keynes
Another motherless maxim is "recessions return money to its rightful owners." One of the guys I follow tweeted to a heckler last week "Yeah, I missed Bitcoin. I also missed housing, the tech bubble and Black Monday. That's why I'm still here, fucko."
See: Greater Fool Theory on Wikipedia, which suggests you see also: