"Financial Nihilism" in Crypto: Zeitgeist of a Generation of Young Americans

TL;DR

First, let’s briefly introduce the concept of “Financial Nihilism”: The cost of living is suffocating for most Americans; upward social mobility is increasingly out of reach for more people; the American Dream has largely become a thing of the past; and the ratio of median home prices to median household incomes is at a completely unsustainable level.

Due to the significant discussion and resonance sparked by the concept of “Financial Nihilism,” we will delve into it in more detail. It’s important to note that this is not an original term; host Kofinas first introduced it at least two and a half years ago.

“Financial Nihilism” runs parallel to populism, which is a political tactic aimed at attracting ordinary people who feel neglected by established elite classes. Populism is a topic I’ve discussed many times before, perhaps most sharply in my February 2021 monthly report discussing Gamestop. The driving factors behind discussing financial nihilism and populism are the same: a sense of dissatisfaction with the system and a desire to try something very different (such as buying SHIB or voting for Trump).

Let’s analyze the driving factors behind “Financial Nihilism.” As mentioned earlier, the ratio of median home prices to median household incomes is the most symbolic chart of this sentiment. Below is the chart along with some annotations for reference:

The Baby Boomer generation (along with Generation X) bought houses at about 4.5 times their annual incomes, followed by the subprime mortgage crisis fueling the real estate bubble, which eventually burst. Shortly thereafter, the Millennial generation entered the workforce and began buying houses at prices about 5.5 times their annual incomes. Then Covid-19 happened, the Fed printed $6 trillion, leading to current home prices reaching 7.5 times annual incomes, even higher than the peak of the real estate bubble. For millions of Americans under the age of 40, buying a home is simply an unattainable dream.

We can further examine the situation in real estate. The following chart shows the share of total real estate value held by different generations in the United States:

From 1989 to 2023, the total value of real estate held by American households increased from $7 trillion to $45 trillion, nearly a sevenfold increase. In 2020, when the youngest Millennials turned 25, Millennials held 13% of the total real estate value. In 2005, when the youngest Generation X turned 25, their share of housing wealth was 17%. In 1989, when the youngest Baby Boomers turned 25, they already owned 33% of the total real estate value.

So, it’s a bit unfair for today’s young people, right?

But let’s continue. This is intergenerational wealth distribution broken down by generation, similar to the type of chart above, but focusing on total net worth versus just the value of real estate:

From 1989 to 2023, the total wealth of American households increased from $20 trillion to $143 trillion, a sevenfold increase. However, in 2020, when the youngest Millennials turned 25, Millennials held only 5% of the total household wealth. Therefore, upon delving into these numbers, it’s not surprising to find the rise of financial nihilism among young people.

In contrast, in 2005, when the youngest Generation X turned 25, their generation had already accumulated 8% of all household wealth. If we compare this data with the Baby Boomer generation – in 1989, when the youngest Baby Boomers turned 25, they had amassed 20% of the total household wealth!

Looking at these statistics from the perspective of wealth percentiles rather than generations is equally disheartening:

During this period, total wealth grew sevenfold, from $20 trillion to $143 trillion. However, wealth distribution has become severely unequal. The proportions of wealth held by the top 10%, 1%, and 0.1% of the wealthiest individuals have significantly increased, while the share of wealth held by the bottom 50% of the population has actually decreased. This means that the wealth gap is widening, and achieving the American Dream of upward social mobility is becoming increasingly difficult for most people. It’s a truly disheartening situation.

Performing the same analysis on real estate values would yield slightly different charts, but the results would be the same:

In the past period, while overall wealth has increased by $38 trillion, the rich have been getting richer, while the bottom 50% of people have actually seen a decrease in their share of wealth.

Let me illustrate my point with another chart. The following chart shows the “Ratio of Median Household Income to the S&P 500 Index,” which can be understood as “how many shares of the S&P 500 stock one year’s median income can buy”.

This paints a grim picture once again: back in the early 1960s, people could buy 94 shares of the S&P 500 with the median household income. This ratio peaked at 219 shares during the crash in 1982, and then there was a structural breakdown, making the stock market increasingly “expensive” for the average American.

The background is this: the Baby Boomer generation holds most of the wealth, the rich get richer, and the poor get poorer, making the American Dream of upward social mobility increasingly out of reach for more and more people. Why do you think Oliver Anthony suddenly became popular? That’s what’s called financial nihilism.

So, if you find yourself in this disadvantageous situation like most Americans, what do you do?

You tend to take greater risks. To try to break out of your current financial situation (most people rely on wages to make a living; buying a house seems unattainable; burdened with student loans; wage growth can’t keep up with inflation), you feel pressure. You have to take bigger risks in hopes of achieving a more stable, comfortable life.

As a result, people may turn to high-risk behaviors, urgently seeking opportunities for high returns, such as returns of 5:1, 10:1, 50:1, hoping to improve their financial situation. This also explains why the gambling industry is thriving:

In the vast gambling arena, people tend to turn to more accessible forms, such as sports betting that can be done directly on mobile phones. The growth rate of this form of gambling is incredible.

By the way, this year’s Super Bowl broke betting records.

Another example of furthering financial nihilism is the skyrocketing popularity of parlay bets in gambling. This form of betting requires the bettor to hit all bets in a series to receive a high return (winning several times the original wager).

Although I couldn’t find sources reflecting data on parlay bets accumulated over the years (outside of Illinois), the exponential growth curve shown in the graph is enough to illustrate the soaring popularity of parlay bets overall. It’s worth noting that, compared to conventional bets, the house odds for parlay bets are actually higher, despite the potentially more significant returns.

In other words, even though the likelihood of winning is slim, the possibility of high returns still tempts people to take the risk.

Cumulative betting brings to mind a financial instrument - 0DTE options, which stands for Zero Days to Expiry options contracts, also known as “end-of-day” options. Similar to cumulative betting, 0DTE options carry a higher probability of loss, but they also offer the potential for multiplied gains. It’s important to note that regardless of winning or losing, settlements for 0DTE options occur on the day you place the bet (or more accurately, engage in “investment”).

Do you know how the recent trading popularity of 0DTE options is?

Trading of 0DTE options has doubled since the onset of the COVID-19 pandemic. Does this growth rate seem familiar? Indeed, between 2016 and 2023, the proportion of 0DTE options trading to total SPX options volume increased from 5% to 43%.

Evidence of the rise of financial nihilism abounds. For example, the gathering place of retail investors on social media, the WallStreetBets community, well-known retail investor DeepFukingValue, and last year’s trading frenzy surrounding stocks of companies like GameStop, AMC, Bed, Bath & Beyond, Blockbuster, etc., which even resulted in movies being quickly produced on the subject (such as the film starring Seth Rogen about retail investors squeezing Wall Street). This serves to prove the growing popularity of the concept of financial nihilism.

After a brief addition, I will discuss cryptocurrencies—those who choose to practice financial nihilism are essentially directly responding to and imitating the monetary and fiscal policies of the Federal Reserve and the U.S. government. Because these policies are among the major factors contributing to wealth inequality between generations and socioeconomic classes, overall, the actions of the U.S. government are extremely irresponsible, to the point where even professional poker players feel inadequate.

I have been discussing this issue here for many years, but I want to give you some reminders:

Recent actions by the US government have raised concerns about the speed of the depreciation of the US dollar. It can be said that Bitcoin enthusiasts were among the first to realize this, that when government actions become perplexing, people may be compelled to resort to unconventional countermeasures—whether it’s cumulative betting, same-day expiry options on Tesla (TSLA), or betting on cryptocurrencies—because the printing press has been and will continue to operate at a frantic pace. This will lead to distortions in asset prices and risk preferences, and denying this would be unwise.

This brings us back to the cryptocurrency market, a Roman Colosseum of distorted asset prices and risk preferences, where volatility far exceeds that of high-risk investments like same-day expiry options on Tesla. The token gains here even overshadowed the previously discussed high-flying social media concept stocks from last year.

It’s worth noting that cryptocurrency carries a populist hue; it represents a counter-cultural trend and is a movement belonging to the youth. The Baby Boomer generation (Boomers) doesn’t understand it; this is our own domain, and it’s something we can prevail over our predecessors—at least for now. Whether the Baby Boomer generation joins the cryptocurrency wave now, in the coming years, or never, they will eventually leave this world.

The massive wealth accumulated by the Baby Boomer generation will be passed down to the next generation. Where will these assets be used? The answer may be more speculation, more high-risk investments, and more cryptocurrency trading. Please, ask yourself, what will the landscape look like if this trend continues for the next 20 to 30 years? It might resemble a combination of Dave Portnoy and the novel “Ready Player One.”

This article primarily explores the concept of “financial nihilism.” The reason for choosing this topic is twofold: firstly, because I believe it profoundly influences the price movements of cryptocurrencies, and secondly, because the concept resonated with people last month. I hope that through this discussion, you can gain a deeper understanding of this phenomenon than before.

By writing this article, I have also gained a deeper understanding of “financial nihilism.” My feeling is that this trend is becoming increasingly prevalent and deeply rooted in American society (and globally). “Financial nihilism” is one of the major factors affecting the volatility of cryptocurrency prices, and it may further strengthen. In the upcoming period, it will continue to play a significant role.

You can expect the cryptocurrency market to become more rational, cautious, capable of addressing real-world issues, and possessing reasonable valuation methods to avoid bubbles. However, I believe that at least in this cycle, these expectations may be challenging to realize.

There are reasons to suggest that the cryptocurrency market in this cycle may be more speculative than ever before, with even more tokens lacking any practical use case. A larger bubble may be inflated, followed by a more severe collapse. The factors driving “financial nihilism” and its incentive mechanisms are simply too powerful. Therefore, take appropriate measures to mitigate risks.

Disclaimer：

1. This article is reprinted from [theblockbeats], All copyrights belong to the original author [Travis Kling, founder of Ikigai]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
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