An investment tip for you from George Soros

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George Soros is a world-famous investor and often feared because of this reputation as “the man who broke the Bank of England” when he made $1 billion in one day, September 16th, 1992 (known as Black Wednesday).

The news that George Soros’ $26 billion family office is getting into the cryptocurrency market has created a flurry of interest in the likely impact of this move; after all if the investor can make $1 billion in a day, what might he do in the crypto markets. As Coindesk says: “This is one institutional player with the ability to go large and make or break a currency … even a digital one.”

Soros’ tip for success

George Soros attributes his success to “reflexivity.” This is a theory, which states that investors make decisions based on their perception of reality. In other words, there is an important distinction between ‘reality’ and the perception of it at play.

The reflexivity theory says there is an objective and subjective reality. According to Soros, “the subjective aspect covers what takes place in the mind and the objective aspect is what takes place in external reality.” He has stated that the global financial crisis of 2008 as an illustration of the theory.

Basically he is saying that markets are in a constant state of flux and that they more frequently present a distorted view of reality.

Applying his theory to crypto market

As we have seen, the more people form a positive view about crypto, the more the price will soar, and vice versa. Some say there is even a ‘cultish’ aspect to Bitcoin and its peers that exaggerate the effects of enthusiasm for it.

Omri Ross, assistant professor at the University of Copenhagen, says: “The reflexivity of economic actors is confirmed by the proliferation of subcultures and fan groups emerging around various projects.” And he adds, “In the young and volatile crypto markets, near-religious beliefs about price appreciation with references to various intrinsic valuation models can be observed daily.”

We don’t know the effects yet of Soros entering the crypto market, but we can learn from his insights about the relationship between cause and effect, and the role of perception in a new, developing and volatile market.

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