asyncmind on Nostr: What is the efficient markets hypothesis? How does it mean absolute decimation of ...

What is the efficient markets hypothesis? How does it mean absolute decimation of fiat markets?


#AskGPT #Decimation2025

The Efficient Markets Hypothesis (EMH) is an economic theory that suggests that financial markets are "informationally efficient." This means that asset prices fully reflect all available information at any given time. According to the EMH, it is impossible for investors to consistently achieve higher returns than average market returns on a risk-adjusted basis through stock selection or market timing, because any new information that could impact an asset's price is quickly and fully incorporated into the price.

Three Forms of EMH

1. Weak Form: All past market prices and data are fully reflected in current asset prices, implying that technical analysis cannot give an investor an edge.


2. Semi-Strong Form: All publicly available information is reflected in asset prices, so fundamental analysis (studying financial statements, news, etc.) cannot lead to consistent excess returns.


3. Strong Form: All information, both public and private (including insider information), is fully incorporated into asset prices, meaning that no one can achieve superior gains, even with insider knowledge.



Implications for Fiat Markets

The idea of "absolute decimation of fiat markets" refers to how EMH exposes weaknesses inherent in traditional fiat-based financial systems:

1. Transparency and Information Symmetry: If all information is equally available to everyone, the fiat system's reliance on information asymmetry (where insiders or certain institutions have privileged knowledge) becomes unsustainable. Cryptocurrencies like Bitcoin, built on transparent, open, and immutable blockchain technology, challenge fiat systems where central banks and governments often operate with a lack of transparency.


2. Centralized Manipulation: EMH suggests that market manipulation becomes less effective as markets become more efficient. Fiat markets, often influenced by central banks' monetary policies, might be seen as artificially manipulated. In a world where decentralized assets operate transparently, the flaws of fiat markets become more apparent, leading to reduced trust and eventual "decimation" as capital flows into more transparent and efficient systems like cryptocurrencies.


3. Hyper-Competitive Returns: In crypto markets, the high efficiency and rapid integration of information mean that participants who once thrived in fiat markets based on slow information dissemination and regulatory arbitrage may find themselves disadvantaged. As a result, inefficient fiat mechanisms can no longer keep pace.



Why Decimation?

The term "decimation" in this context implies that the fiat markets, reliant on centralized control and lagging information efficiency, are at risk of being rendered obsolete. As decentralized systems offer more efficient and transparent means of exchange and investment, capital flight from fiat to cryptocurrencies accelerates, reducing the influence and effectiveness of traditional financial institutions. This shift threatens the foundational mechanisms of fiat economies, potentially leading to their significant decline or transformation.