When it comes to financial markets, demand curves usually slope downward because people will buy more when things are cheap, and less when they’re expensive.
But sometimes we see upward sloping demand curves. It’s not often though, because they should be impossible to the rational mind.
But they’re not.
Think Dutch tulip bulbs, stocks and bitcoin. These are three phenomena where people want to buy more as the price rises.
In the case of bitcoin, nobody wanted it when it was cheap. In fact, one of the first bitcoin purchases on record was for two pizzas at a cost of 10,000 bitcoin, or about $25 at the time.
Today that transaction could be valued at millions of dollars.
Not surprisingly, people now want bitcoin. Grandmas are talking about it, it’s on the cover of magazines.
It’s the wild west in many ways – even Grandma is investing heavily in speculative stocks!
The truth is, she should probably be in treasury bills, earning 1 to 2 percent. But nobody, not even Grandma, is excited by 2 percent returns.
People want 79,000 percent or something crazy like that, which is a rare return, perhaps achieved solely by holding bitcoin since its inception.
Now, when it comes to yard bags and our favorite beverages, we like low prices. We buy more.
With financial assets, it seems to be the opposite. People are in a tizzy about high prices.
They’re not entirely wrong. If you believe markets trend, high prices should be expected in the future.
But that thinking isn’t for everyone. Not all people can buy high and sell higher. That’s especially true if you’re over age 50 and haven’t saved enough for retirement.
Look, everyone always wants a shortcut. But there aren’t any – even with bitcoin.