Have you ever seen a “black strong event”? This concept is one of the digital currency terms coined by Nassim Nicholas Taleb and describes a situation that is both unexpected and hard to predict. The essence of Black Strong Theory is that the universe is strongly influenced by rare events that are difficult to predict. It may also occur in the world of financial markets such as crypto and have many consequences. For this reason, we have analyzed it in this article from Valx magazine.
An overview of Black’s strong theory
Strong Black is an event unpredictable And it goes beyond what is normally expected of a situation and has potentially severe consequences. A black strong event is characterized by its rarity, strong impact, and extensive mysteries that were revealed in the past. The concept of black strong event was first proposed by Nasim Nicholas Taleb. Taleb, a financial professor and former Wall Street trader, wrote about this concept in 2001 in his book on financial events. He then attributed Black Strong theory to the crypto financial market and proposed three characteristics of this market that are common to all Black Strong events. These features include:
- Black’s strong event is unpredictable.
- This event has far-reaching consequences.
- After the event, people claim that it was really explainable and predictable. (Bias from the past)
Classic Black Strong events include the rise of the Internet and computers, the 9/11 attacks, and World War I. However, many other events such as floods, droughts, and epidemics are improbable, unpredictable, or both. Taleb says that in the Black Swan event, people find a psychological bias and collective blindness towards that event.
What is the probability of a strong black event in the crypto world?
The strong black event has occurred in several different forms in the cryptocurrency industry to date. For example, in order to operate in the crypto field, people need to have access to the Internet at any time so that they can continue their presence in the blockchain network, mining and trading. It is obvious that a long-term outage of the Internet for such businesses means interruption of activity and big losses; So according to the explained theory, the recent internet outage is a strong black risk that occurred in the digital currency market.
Another example is the emergence of the pandemic virus COVID-19 He pointed out that it caused the epidemic of this disease in 2020 and finally caused the disruption and collapse of the financial markets.
Factors affecting the strong event of black financial markets
Strong black events in the crypto market are unpredictable and have a massive impact on asset prices when they occur. Investors at this moment, using reason and logic, say that this event was predictable and they were not surprised. Because investors use foresight to examine what happened in previous Black Swan events, they look for this pattern to predict the future.
Asset prices are affected when a strong black event occurs. Because these events are unpredictable, investors should assume they will occur and allocate their portfolios to prepare for worst-case scenarios. Typically, if a strong black event occurs, accounts are likely to decrease in value. The market may witness a terrible sell-off that will cause prices to fall further. Diversification of the investment portfolio is one of the strategies that can help to limit the investment exposure in the black strong event.
Strong black risk in the digital currency market
As most investors in the digital currency market know, there are several risks in this market. But what is often overlooked is the risk of a strong black event. This theory in the crypto market can occur in various forms that cannot fully predict the cause of a strong black event or how it will occur; But it is better to take protective measures to protect our digital assets from unexpected events.
What is the text of the strong black event? Review of Black Swan Theory appeared first on Wallex Blog. appeared.
