Squid and Self-Fulfilling Expectations Equilibrium
To say the South Korean Netflix series Squid Game has been fairly popular lately would be an understatement. According to major news outlets such as BBC and Reuters, some developers even took advantage of the show’s current hype to create a “play-to-earn” cryptocurrency inspired by it, only to run off with $3.38 million from its buyers. Squid, the name of this cryptocurrency, experienced a volatile change in its value in a very short period of time: starting off at the price of $0.01 per token, it jumped to $2,856 per token in just a week, to only plummet 99.99% of its value as of late once it was revealed to be a sham.
Considering that crypto has become rather mainstream to the point of being adopted by major banks, and “play-to-earn” cryptocurrency allows its owners to earn more of its tokens by playing online games and exchange them for other forms of currencies, the consumer confidence for Squid was rather high— the population was confident of Squid’s eventual success, and an enough fraction of this population purchased tokens for this cryptocurrency, thus confirming its (temporary) success. This is also an instance of positive externality; as more people purchased Squid tokens, those who already owned Squid tokens experienced an increased welfare; they were better off as Squid tokens appreciated in value.
What probably happened to Squid was that it bypassed its first non-zero equilibrium, experiencing an “upward pressure” on the consumption of the token and its demand; those who have not yet purchased a Squid token would have wished that they had, so they acted accordingly on this desire. However, the first non-zero equilibrium is unique for being unstable and for being the critical or tipping point of a product’s success. The moment the consumer confidence declined just slightly below this first non-zero equilibrium, or the moment when people began to realize the Squid cryptocurrency was a scam, people began to value this token significantly less or for nothing at all. They wished they hadn’t bought Squid tokens at all, and Squid’s demand dramatically declined. With how Squid has depreciated in its value by 99.99%, it can be said that this cryptocurrency is close to reaching the new equilibrium of 0; no one would be the owner of a Squid token, and no one would be willing to pay anything for a Squid token. Unfortunately, buyers of Squid realized this too late, and the damage of them losing money was already done.
https://www.bbc.com/news/business-59129466
https://www.reuters.com/technology/crypto-coin-riding-squid-game-high-craters-after-dizzying-rally-2021-11-02/