Imagine such a rare and unexpected event that it completely upsets our certainties and affects the whole world. These events, called "black swans" or "black swans", are at the heart of the theory developed by Nassim Nicholas Taleb. They are characterized by their unpredictability, their massive impact and the human tendency to rationalize them afterwards. Today, we are going to discover what the Black Swans are and how they can affect particularly vulnerable markets like that of cryptocurrencies.
Table of contents
Definition and origin of the term
The term Black Swan originates from an ancient belief: all the swans were white, until we discover black swans in Australia. This unexpected discovery inspired the metaphor for an event that completely escapes traditional forecasts and upsets our understanding of the world.
The main characteristics of a Black Swan
Three essential criteria define a Black Swan event:
- Unpredictability : These events escape the usual forecast models and are often considered impossible before their occurrence.
- A disproportionate impact : when a black swan occurs, its repercussions are considerable, upsetting not only a sector, but sometimes the whole world economy.
- Biased retrospection : after the event, we tend to reinterpret the facts and to believe that we could have predicted it, which strengthens our false confidence in our forecasting capacities.
Black swan theory: rethink uncertainty
Where does the black swan theory come from?
The theory of black swan has been formalized by Nassim Nicholas Taleb in his work The Black Swan: The Impact of the Highly improbable, published in 2007. Taleb, an expert in risk management and financial mathematics, criticizes the way in which financial economists and analysts underestimate rare events, however capable of causing stock markets and global. According to Taleb, classic economic models fail to anticipate improbable events that can have devastating consequences, such as financial crises. This theory applies in particular to stock markets, where unpredictable events can lead to a sudden fall in global scholarships.
Cognitive bias linked to Black Swans
The Black Swans highlight a cognitive bias called the retrospection bias. This bias pushes individuals, including traders and financial institutions, to rationalize after the fact of events that no one had seen, such as the Krach of 2008 or the liquidity crises observed on the markets. This mechanism creates a false impression of predictability. Consequently, even central banks, like the Fed and the ECB, are sometimes taken short by these events, which complicates their ability to adjust their monetary policy or their interest rates in times of crisis.
This distortion can be dangerous, especially in the financial markets, where it leads to neglecting uncantified risks.
Historical examples of Black Swans events
The 2008 financial crisis
One of the most notorious examples of Black Swan is the subprime crisis , which plunged the world into a global recession. Although some economists and analysts have warned the dangers of excessive debt and the overvaluation of securities , few had anticipated the massive collapse of stock markets and the bankruptcy of institutions like Lehman Brothers . The crisis has revealed the fragility of the financial system to unexpected shocks, impacting not only the United States , but also emerging countries and dependent economies of the dollar .
The role of subprimes
The subprimes , these risky loans granted to borrowers with low solvency , fueled a real estate bubble which, once broke out, triggered a collapse of the stock markets and a global economic crisis. The explosion of mortgage debt has led to massive losses in the financial instruments backed by these loans. The crisis has forced central banks , including the Fed , to drastically lower their interest rates and to inject cash into the system to avoid a bankruptcy of certain financial institutions .
COVVI-19 pandemic
The Pandemic of COVID-19 is another example of Black Swan that has turned the world economies . Although health alerts have been issued by WHO and other institutions, no one had planned that the pandemic would cause such a massive interruption of trade and a global economic slowdown The scholarships have undergone strong drops, and central banks were forced to put in place exceptional measures to stabilize markets and avoid liquidity .
An unexpected impact worldwide
The economic effects of the pandemic have spread quickly, with repercussions not only on deposits and the treasury of companies, but also on the debt of emerging countries . The response of central banks , such as the Fed or the ECB , consisted in lowering interest rates to revive growth and supporting companies in difficulty. At the same time, debt rates have exploded, which makes certain economists a future crash or a new financial crisis if these debts cannot be reimbursed.
In summary, unpredictable events, such as Black Swans , recall that even monetary policies can come up against uncontrollable economic forces. Whether it is a health crisis or a stock market , these events question our understanding of the financial markets and the illusion of control that the central banks and the traders of Wall-Street .
The cryptocurrency market and Black Swans
A young and volatile market
The cryptocurrency market, still young and in full evolution, is particularly exposed to Black Swans because of its volatility and its absence of strict regulation. The decentralized nature of cryptos, coupled with strong speculation, makes this market vulnerable to unpredictable external events, which can cause extreme price fluctuations.
Why cryptocurrencies are particularly sensitive to black swans
Cryptocurrencies are already subject to high daily volatility. When unexpected events occur, such as sudden regulations or bankruptcies of major companies, the reactions of the Cryptos markets can be disproportionate. Panic movements are often amplified by speculators and by the rapid dissemination of information on social networks, further increasing instability.
Examples of black swans events in the crypto
The collapse of FTX
The most significant example recently is the FTX exchange platform . No one expected a platform of such a scale, formerly perceived as a solid leader in the crypto ecosystem, collapses due to a liquidity crisis. This event has created a real shock on the market, with massive losses for users and cascade effects on other platforms.
Conclusion: the Black Swans, the unpredictable that changes everything
A Black Swan is a rare, unpredictable event, which has a major impact on complex systems such as the economy or the financial markets. The criteria that define these events - their rarity, their devastating impact and our tendency to rationalize them after the fact - must encourage us to review our risk management models. The cryptocurrency market, still young and in full construction, is particularly vulnerable to these external shocks. Faced with the unpredictable, it is crucial to remain flexible and aware of the uncertainties that surround us.
Faq
What is a black swan in finance?
A Black Swan is an extremely rare, unpredictable event with disproportionate consequences on the financial markets or the global economy.
How to protect yourself from Black Swans events?
It is difficult to protect yourself from a black swan because of its unpredictable character. However, diversifying your investments and having available liquidity can mitigate the effects of such a shock.
What role do the media play in the Black Swans?
Mass media can amplify the effects of Black Swans by disseminating information alarmist or exaggerated, which can generate disproportionate panic movements.
Why are cryptocurrencies more vulnerable to Black Swans?
The cryptocurrency market is still young, volatile and weakly regulated, which makes it more likely to react excessively to unforeseen events.
Will there be other black swans in cryptos in the future?
It is likely that future black swans will affect the cryptocurrency market, given the youth and the volatile nature of this market. External events, unpredictable, will continue to cause shocks.
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Yohan Uzzan
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
