1/ A thread on investor incentives: Lemming behavior in investing is nothing new and not unique to crypto, but it does seem to become more common in complicated, technical realms where investors have a harder time doing their own diligence. Crypto certainly fits that bill.
2/ Different investors, particularly those writing personal checks, have a whole slew of reasons for which they might invest, many of which are not strictly tied to expected financial upside.
3/ Sometimes they’re relationship-driven: if your personal net worth is a few billion, it may literally be easier for you to write a $50K check into a company than it is to deal with saying no. A token investment gets you out of the awkwardness of declining.
4/ Sometimes they’re curiosity-driven: the investor might think the company has an extremely low likelihood of succeeding, but find the entrepreneur interesting enough to want to be able to call them up occasionally, which is easier when you’re an investor in the company.
5/ Sometimes they’re learning-driven: they may think the company will fail, but want to use the investment to learn more about a particular industry (and compared to college these days, that $50K seems like cheap tuition).
6/ And sometimes, they’re portfolio-driven:if you are a BTC whale and you think a layer-two scalability solution could make the value of your BTC increase tenfold, it makes sense to invest in the company building the solution whether or not you expect any return from the company.
7/ But from an outside perspective, someone seeing a headline “XYZ investor invests in layer-two protocol” who doesn’t know this investor is a bitcoin whale might follow XYZ into that investment, without holding any bitcoin, and end up with a very different outcome.
8/ You really can’t draw too many conclusions about why someone made an investment unless you have a comprehensive understanding of their portfolio.
9/ Investors have many different reasons for why they might choose to invest in a company. Especially if you don’t know them personally and haven’t discussed their rationale, it’s very dangerous to play follow-the-leader. Do your own homework!
