Episode 5 of Season 5 of The Scoop was recorded remotely with The Block's Frank Chaparro and Jordi Alexander, Founder & CIO of Selini Capital.
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While the crypto market may seem chaotic to the outside observer, game theory can be used to analyze the underlying dynamics that lead to volatile price action.
Jordi Alexander, Founder & CIO of Selini Capital, has a track record for utilizing game theory to predict crypto market events — including the collapse of the TerraUSD 'stablecoin' last year.
In this episode of The Scoop, Alexander unpacks how individual cryptocurrencies derive their value, and explains how game theory can be used to demystify crypto market behavior.
According to Alexander, the value of cryptocurrencies comes largely from their potential for some future utility:
“A lot of these tokens, including the big ones, including Bitcoin and Ethereum, they’re options, and you have to understand what gives an option value . . . Ethereum is an option on all the future apps that can be built and use that platform . . . Bitcoin is a call option on it being an alternative to the fiat financial system.”
In addition to economic predictions, game theory can also be applied to crypto in a geopolitical context when it comes to regulation.
As Alexander explains, the United States unilaterally banning crypto would do little to stop the growth of the industry:
"If they ban [crypto] over here, game theory stipulates that there's going to be so much demand that will get satisfied by another country providing it that maybe it's actually not good for the United States to ban and assume that this is going to go away because it's not going to stop crypto from developing — it'll just drive it to somewhere else."
During this episode, Chaparro and Alexander also discuss:
- The dynamics of a short squeeze.
- Understanding crypto protocol yield.
- Alexander's long-term view on ETH vs. BTC.
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