All writing
Easy Money and Veblen Goods
finance
Why some things get more valuable as they get more expensive
1 min readApril 8, 2022
Bitcoin increased 6.9 billion percent between 2010 and 2021.
Over $160 billion in crypto gains was realized in 2021 alone—$76.3B in ETH, $74.7B in BTC, $11.7B in altcoins. Millionaires and billionaires were minted. All that money needed to go somewhere.
What do newly wealthy people buy? Often, things that are valuable because they're expensive.
The Veblen Effect
Consider two white cotton t-shirts:
- TJMaxx: $5
- Prada: $500
The material difference is negligible. The price difference is the point. The Prada insignia carries clout and cultural significance. You're not buying cotton—you're buying status.
NFTs work the same way. People buy them for:
- Flipping (buy at X, sell at X+Y)
- Community membership
- Status signaling
Usually all three.
Valuing the Unvaluable
How do you value an NFT? Ask successful crypto traders and they'll say: follow the cult.
Not join the cult. Observe which communities are most cultish. Position accordingly.
The pattern:
- Price rises
- People notice
- More people buy
- Price rises more
- Average buyer gets priced out
- Capitulation
- 99% go to zero
Why do people flock to gold in crises when rarer metals exist? Because other people flock to gold. The mimetic desire is the feature, not a bug.
Ethereum as Veblen Good
Ethereum's argument is decentralization and security. Most users don't care—they care about fees and UX.
When you pay $100 for an Ethereum transaction you can do on Solana for $0.001, what are you paying for? Network effects. Status. The right to say you're "on Ethereum."
This is somewhat tongue-in-cheek. But as more scalable chains rise, Ethereum's fees may become increasingly Veblen—a premium people pay because it's expensive, not despite it.
The Psychology
When economies bust, discretionary spending drops. When economies boom, normal goods become Veblen goods.
Consider how people actually make decisions:
- BTC up 5%: "I can buy later at a similar price. No rush."
- BTC up 20%: "I'll never see this price again. Buy now."
Same asset. Same fundamentals. Different price action, different psychology, different behavior.
This is the Veblen effect in motion. The price increase doesn't just reflect demand—it creates demand. The expensive thing becomes more desirable because it's expensive. The rising price becomes the reason to buy.
In a market where assets are worth whatever someone else will pay, psychology isn't a distortion of fundamentals. Psychology is the fundamental.
Easy Money and Veblen Goods
finance
Why some things get more valuable as they get more expensive
1 min readApril 8, 2022
crypto
Bitcoin increased 6.9 billion percent between 2010 and 2021.
Over $160 billion in crypto gains was realized in 2021 alone—$76.3B in ETH, $74.7B in BTC, $11.7B in altcoins. Millionaires and billionaires were minted. All that money needed to go somewhere.
What do newly wealthy people buy? Often, things that are valuable because they're expensive.
The Veblen Effect
Consider two white cotton t-shirts:
- TJMaxx: $5
- Prada: $500
The material difference is negligible. The price difference is the point. The Prada insignia carries clout and cultural significance. You're not buying cotton—you're buying status.
NFTs work the same way. People buy them for:
- Flipping (buy at X, sell at X+Y)
- Community membership
- Status signaling
Usually all three.
Valuing the Unvaluable
How do you value an NFT? Ask successful crypto traders and they'll say: follow the cult.
Not join the cult. Observe which communities are most cultish. Position accordingly.
The pattern:
- Price rises
- People notice
- More people buy
- Price rises more
- Average buyer gets priced out
- Capitulation
- 99% go to zero
Why do people flock to gold in crises when rarer metals exist? Because other people flock to gold. The mimetic desire is the feature, not a bug.
Ethereum as Veblen Good
Ethereum's argument is decentralization and security. Most users don't care—they care about fees and UX.
When you pay $100 for an Ethereum transaction you can do on Solana for $0.001, what are you paying for? Network effects. Status. The right to say you're "on Ethereum."
This is somewhat tongue-in-cheek. But as more scalable chains rise, Ethereum's fees may become increasingly Veblen—a premium people pay because it's expensive, not despite it.
The Psychology
When economies bust, discretionary spending drops. When economies boom, normal goods become Veblen goods.
Consider how people actually make decisions:
- BTC up 5%: "I can buy later at a similar price. No rush."
- BTC up 20%: "I'll never see this price again. Buy now."
Same asset. Same fundamentals. Different price action, different psychology, different behavior.
This is the Veblen effect in motion. The price increase doesn't just reflect demand—it creates demand. The expensive thing becomes more desirable because it's expensive. The rising price becomes the reason to buy.
In a market where assets are worth whatever someone else will pay, psychology isn't a distortion of fundamentals. Psychology is the fundamental.