Original author: Travis Kling

Original compilation: Frank, Foresight News

First, let’s briefly introduce the concept of “Financial Nihilism”: the cost of living makes most Americans breathless; upward social mobility is out of reach for more and more people; the American dream is still growing extent is a thing of the past; and the ratio of the median home price to the median household income is at a completely unsustainable level.

Since the concept of “financial nihilism” generates a lot of discussion and resonates with people, we will explore this concept in more detail. Let me start by saying that this is not an original term, host kofinas first coined the concept at least two and a half years ago.

“Financial nihilism” goes hand in hand with populism, a political approach designed to appeal to ordinary people who feel ignored by established elites. Populism is a topic I’ve discussed many times in the past, perhaps most pointedly in my February 2021 monthly report on Gamestop. Discussing that the drivers behind financial nihilism and populism are the same, I don't think the system is right for me, so I want to try something very different (like buying SHIB or voting for Trump).

Let’s analyze the drivers of “financial nihilism”. As mentioned before, in my opinion, the ratio of the median home price to the median household income is the chart that best symbolizes this sentiment. This is shown below. A diagram with some added notes for reference:

Baby boomers (and Gen Shortly thereafter, Millennials entered the workforce and began buying homes at 5.5 times their annual income. Then Covid happened and the Fed printed $6 trillion, resulting in home prices now at 7.5 times annual income, much higher than even the peak of the housing bubble. For millions of Americans under the age of 40, buying a home is a distant dream.

We can drill down further into real estate, and here’s a chart showing each generation’s share of total real estate value in the U.S.:

From 1989 to 2023, the total value of real estate held by U.S. households increased nearly sevenfold from $7 trillion to $45 trillion. In 2020, when the youngest Millennials turned 25, Millennials held 13% of total real estate value. In 2005, when the youngest Gen Xers turned 25, their share of housing wealth was 17%. In 1989, when the youngest baby boomers turned 25, they already owned 33% of total real estate value.

So for today's young people, it's a little unfair, right?

But let’s go ahead and here’s the distribution of household wealth by generation, a similar type of chart to the one above, but looking at total net worth versus the value of just real estate:

From 1989 to 2023, total U.S. household wealth increased sevenfold from $20 trillion to $143 trillion, but in 2020 the youngest Millennials will be 25 years old, and Millennials have only 5% of total household wealth, so when you dig into the numbers, it’s no surprise that financial nihilism is on the rise among young people.

By comparison, in 2005, when the youngest Generation By the time baby boomers reach 25, they have amassed 20% of total household wealth!

Viewing these statistics in terms of wealth percentiles rather than generations is equally disheartening:

During this time, total wealth increased seven-fold, from $20 trillion to $143 trillion, yet there was significant inequality in the distribution of wealth. The share of wealth held by the top 10%, 1% and 0.1% has increased significantly, while the share of wealth held by the bottom 50% has actually decreased. This means that the gap between rich and poor is widening, and the American dream of upward social mobility is becoming increasingly difficult for most people. This is a really frustrating situation.

Performing the same analysis on property values ​​yields a slightly different graph, but the same result:

Although overall wealth has increased by $38 trillion over the past period, the rich have gotten richer, while the bottom 50% have actually seen their share of wealth decrease.

Let me use another chart to prove my point. The following chart is 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 can be bought with one year's median income."

Again, this paints a grim picture: Back in the early 1960s, one could buy 94 shares of the S&P 500 with the median household income, and the ratio peaked at 219 shares during the 1982 crash, and then the structure The stock market has become increasingly “expensive” for ordinary Americans.

The context is this: Baby boomers control most of the wealth, the rich are getting richer, the poor are getting poorer, and the American dream of upward social mobility is out of reach for more and more people. Why do you think Oliver Anthony suddenly became famous? This is called financial nihilism.

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

You tend to take greater risks. In order to try and get out of your current financial situation (most people are living paycheck to paycheck; buying a home seems out of reach; you are saddled with student loans; salary increases are not keeping up with rising prices), you feel pressured to take more risks. Take big risks in order to achieve a more stable and comfortable life.

Therefore, people may turn to high-risk behaviors and eagerly seek high-return opportunities, such as 5:1, 10:1, 50:1, hoping to improve their financial situation, which can also explain why the gambling industry is booming develop:

Across the wider gambling landscape, there is a shift towards more accessible forms of participation, such as sports betting where bets can be placed directly from your mobile phone, which is growing at an incredible rate.

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

A further example of "financial nihilism" is the surge in popularity of parlay bets, a form of betting that requires bettors to hit all the hits in a series of bets to achieve high returns (win multiples of the original stake) .

While I can't find a source that reflects multi-year cumulative betting data (other than Illinois), the crazy growth curve shown above is enough to illustrate the overall surge in popularity of cumulative betting. It’s worth noting that cumulative bets actually have higher house odds than regular bets, although the potential returns are also greater.

In other words, even though the chances of winning are slim, the high potential payoffs make people take the risk.

Accumulation bets are reminiscent of a financial instrument - 0 DTE options, which are options contracts that expire on the same day (Foresight News notes, doomsday options). Similar to cumulative betting, 0 DTE options also have a higher probability of loss, but the potential gains are also multiplied. It’s worth noting that wins or losses are settled on the day you place your bet (or rather “invest”).

Do you know how popular 0 DTE options have been recently?

0 DTE options trading has doubled since the coronavirus pandemic. Does this growth rate look familiar? That’s right, between 2016 and 2023, 0 DTE options trades increased from 5% to 43% of total SPX options volume.

Evidence of the rise of “financial nihilism” abounds. For example, the WallStreetBets community, a gathering place for retail investors on social media, DeepFukingValue, a well-known retail investor, and the trading boom in the stocks of GameStop, AMC, Bed, Bath Beyond, Blockbuster and other companies that caused heated market discussions last year, and even related movies quickly The release of movies (such as the movie starring Seth Rogen about retail investors shorting out Wall Street) is enough to prove that the concept of "financial nihilism" is becoming increasingly popular.

I will talk about cryptocurrencies later by adding that - the behavior of those who choose to practice "financial nihilism" is essentially a direct response to and imitation of the monetary and fiscal policies of the Federal Reserve and the US government. Because these policies are one of the major contributors to wealth inequality between generations and wealth classes, the U.S. government in general is acting in an extremely irresponsible manner that puts professional poker players to shame.

I've been discussing this here for years, but I'll give you a few reminders:

The recent actions of the US government have caused the dollar to depreciate at an alarming rate. Bitcoin enthusiasts are arguably the first to realize that when the government's actions are incomprehensible, people may be forced to take unconventional countermeasures - whether it is accumulating bets, Tesla (TSLA) call options expiring that day, or betting on virtual currencies, because the printing press has and will continue to run wildly, which will lead to distortions in various asset prices and distorted risk appetite. It is unwise to deny this.

Which brings us back to the cryptocurrency market, the Colosseum of distorted asset prices and risk appetites, with volatility far greater than high-risk investments like Tesla call options expiring that day, where token gains have even made The social media concept stocks that caused a lot of buzz last year pale in comparison.

It should be noted that cryptocurrency has a populist flavor, it represents a counter-cultural trend, and it is a movement belonging to young people. Boomers don't understand it, it's our own domain, and it's the one thing that beats our predecessors (at least so far). Whether baby boomers join the cryptocurrency wave now, in the next few years, or never, they will eventually leave this world.

The huge assets accumulated by the baby boomers will be passed on to the next generation. What will these assets be used for? The answer may be more speculation, more high-risk investments, and more cryptocurrency trading. Please ask yourself, what will it look like if this whole trend continues for 20 to 30 years? It's like Dave Portnoy combined with the novel "Ready Player One".

This article focuses on the concept of “financial nihilism,” a topic chosen both because I believe it profoundly affects cryptocurrency price trends and because the concept has resonated with people over the last month. . Hopefully, after this explanation, you will be able to understand this phenomenon more deeply than before.

By writing this article, I have gained a deeper understanding of "financial nihilism". My sense is that this ethos is becoming more pervasive and ingrained in American society (and globally). "Financial nihilism" is one of the main factors affecting cryptocurrency price fluctuations, and it is likely to be further strengthened. It will continue to play an important role in the upcoming cycle.

You can expect the cryptocurrency market to become more rational and prudent, able to solve real problems, and have reasonable valuation methods to avoid bubbles. However, I think these expectations may be difficult to achieve, at least during this cycle.

There are reasons to believe that the cryptocurrency market may be more speculative than ever in this cycle, and there may even be more tokens that "lack any real use", and a bigger bubble may be blown up, followed by a more violent crash. The factors that promote "financial nihilism" and their incentives are too strong. Therefore, take appropriate measures to avoid risks.