The Invisible Hand: Why is the crypto market also playing this trap?

The “invisible hand” of economist Adam Smith refers to the idea that individuals acting in their own self-interest inadvertently drive the entire market toward efficiency. This logic is fully applicable in the crypto market.

For example, when you trade BTC, you are not really thinking “I want to maintain the financial attributes of Bitcoin”, but just want to make money or hedge risks. However, it is precisely the trading decisions of millions of retail investors + institutions that determine the real price of BTC through the relationship of supply and demand and competition. The same goes for public chain projects; the development team is not optimizing the code out of charitable intentions, but to seize the market. So what is the result? The entire Web3 ecosystem is being pushed forward.

But this theory also has its flaws: it assumes that market participants are all rational (in reality, FOMO is rampant), ignores external costs (such as the impact of computing power on the environment), and does not consider information asymmetry (a single statement from an influencer can crash the market). Therefore, the invisible hand is not a deity; the market still needs some regulation to correct its failures.

Conclusion: Understanding this concept helps you determine when to go with the trend and when to be wary of market failures.