Invest: Why the Squid game coin is a brilliant scam

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Here are three sentences that I found on the internet:

SQUID implements an innovative anti-dump mechanism where buying in the market will release selling credits at a rate of 2:1.

The maximum amount of SQUID that can be sold is half of the total buying value in the pool. When the credit in the pool is depleted, you can’t sell any more.

That is an innovative anti-dump mechanism! Whenever stocks or cryptocurrencies go up, someone will half-joke that the explanation is “more buyers than sellers.” If you just build into the design of your cryptocurrency that there always have to be twice as many buyers as sellers, it will always go up.

Obviously that sentence makes no sense, and SQUID — the Squid Game Token — did not always go up during its short life. Well, actually it did — “It surged more than 230,000% in the past week to $2,861.80,” until its anonymous developers apparently stole all the money; then it went down. The whole thing is so stupid and overdetermined that I cannot bear to write about it; if you lost money on SQUID you should just come to my house and give me your wallet because you should not be allowed to use money anymore. “New Squid Game Cryptocurrency Launches as Obvious Scam,” before it crashed, listing red flags like “Netflix’s Squid Game is the most popular streaming show in the world right now, so it makes sense that scammers would use the name without permission,” and “the website for the Squid Game crypto even includes a fake endorsement from billionaire Elon Musk,” and “the single largest red flag is the fact that people can put money in, but can’t take it out.” According to the now-disappeared white paper there was purportedly a mechanism to take money out by (1) spending a lot of SQUID coins to play a game, (2) winning the game, (3) collecting some other related cryptocurrency and then (4) being allowed to sell your SQUID freely if you had that currency. But, come on, instead they just stole all the money.

I do, however, want to talk about that anti-dumping mechanism, which I love. It is a basic fact about financial markets that if lots of people want to buy an asset and nobody wants to sell it, the price will go up. (Strictly, if nobody wants to sell it, there will be no trades and no price, but if very few people very reluctantly sell it then there will be some trades and the price will go up.) In general this is sort of an epiphenomenon of some more fundamental reason that people want to buy it. “More buyers than sellers” is a joke, a non-explanation; if someone asks you why Tesla stock went up and you say “more buyers than sellers” you are just being annoying and obtuse.

But in modern crypto and meme-stock markets this basic fact has been distilled into a fundamental belief, free of any underlying reason. “If we all buy this thing and don’t sell it, the price will go up, and then we’ll be rich” is a belief that is … sort of logical? … and that can be applied to anything. “If we all buy GameStop Corp. stock,” etc.; there the belief went by the name “diamond hands.” “If we all buy Bitcoin,” etc.; there it goes by the name “HODL.” There is a new generation of crypto stuff like Olympus DAO, where it goes by the name “(3,3),” a vague wave in the direction of game theory: “(3,3) is the idea that, if everyone cooperated in Olympus, it would generate the greatest gain for everyone (from a game theory standpoint).” “Cooperate” in that sentence just means buying a lot and never selling. 

This belief has a basic mechanical problem, which is that if you all buy the thing and don’t sell it and become rich, you can’t actually use your riches without selling the thing. Sometimes this takes the shape of a pump and dump: People buy the thing, it goes up, they get rich on paper, they try to cash out, it crashes, some of them are left holding the bag. Sometimes, though, it takes the shape of, like, mass adoption and stable wealth? If you bought a lot of Bitcoins at $2 you are very rich now and you can probably cash out enough wealth to buy a yacht without really affecting the price of Bitcoin. Bitcoin just kind of made it.

The weirdest thing that I think about is that GameStop might also have kind of made it? If you got rich on GameStop you can sell your GameStop stock and be rich and the price might be unaffected either by your selling or by the underlying cash flows of GameStop the company. That is much weirder than Bitcoin because GameStop is a company. But the point is that when I say that this belief can be applied to anything, I also mean that it might work for anything. Like, why not, mass societal adoption of GameStop as a store of value, stranger things have happened though I cannot actually think of one.

SQUID did not make it, obviously. But its marketing is instructive. The marketing was “people can buy it but they can’t sell it.” Skeptics, correctly, interpreted this as a mark of a scam. But it was marketed as a good thing, an innovative way to design a coin that would always go up because people would buy and not sell it. There is a lot of demand for that!