Efficiency

We explored Efficiency on one of my previous posts, but, in short, it is a measure of how well prices respond to existing information.

The Real World is Efficient

Most markets are pretty efficient.

With the increase in accessibility to exchanges and information availability, most relevant knowledge is taken into account when markets - buyers and sellers - determine the price of assets.

What are the consequences?

This fact has some consequences that should be known to anyone trying to make money in more complex and advanced markets, namely: Crypto!

Old News

Older news have already affected the price of an asset, meaning they're of little to no use to new investors. This is because most markets process new information very fast.

Example - A wild bug appears!

If it was announced today at 4:00 PM that a major bug was found in Etherium's code, due to the upgrade to ETH2, its price would instantly drop.
But, if you woke up the next day and read about the bug, it was probably already too late to sell, the price was already too low.

Competition is fierce

More people can jump into the markets, therefore there is more competition. This leads to the best investment opportunities being taken up very quickly.

Prices have meaning

Markets are essentially how humans decide on the value of things.
Because real markets are very efficient and agile, they're the best estimate we have as a species for many assets' "real" worth.

Cheaper goods

And, finally, all this efficiency also means that most consumer goods will be produced at the best quality/price ratio possible.

Conclusion

Efficient Markets make it hard to make money, but, overall, generate more output for the entire world and lead to cheaper prices!

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Thanks for reading!
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Take a look at my last posts, about Investments!

Images from: Unsplash and Pixabay

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