The Insanity of Market Panic
Besides being Second Life's first official dope dealer, I also dabble in the L$ currency exchange marketplace.
I originally invested $500 into a trading account at Gaming Open Market, which is a website that offers a marketplace for the exchange of Second Life's Linden Dollar currency (L$), and real US dollars. I'm able to eek out enough profit on this to pay the fees to Linden Lab I have to pay in order to be a part of this SL metaverse.
Basically what I do is buy low, sell high, making tiny trading profits each time, and repeat as often as possible. I know for a fact that there are many others who do this as well. We all compete against each other (which ultimately results in buyers and sellers getting the best price possible), and we create liquidity in the market, so that these same buyers and sellers will always find someone with which to do business.
One of the underpinnings of Second Life's "vision" is that it provides the framework for a real economy that exists within the 3D world itself. Linden Labs has always encouraged the free exchange of its Linden dollars for US dollars. This offers people who want to invest real dollars into Second Life the ability to acquire the L$ necessary, and also offers those who accumulate L$ in this virtual world to realize real world money as a result.
Gaming Open Market (GOM for short) is a website put together by two wonderful gentlemen from Toronto, and offers buyers and sellers of Linden dollars a place to come and create a free marketplace. Just like any real currency exchanges, people can makes bids, or ask for a certain price, and the price of the currency goes up and down as demand ebbs and flows.
Over the summer of 2004, the value of the L$ rose significantly on GOM, eventually rising by about 20-25%. This was, in my opinion, driven by 2 factors. The first was that there was a shortage of available land in Second Life (Linden Labs wasn't bringing in new land fast enough to keep up with demand). The other factor was driven by a pseudo-competitor to GOM called Internet Gaming Entertainment (IGE), which is an outfit involved in the buying and reselling of many different MMORPG currencies. IGE, during this period, was buying L$ left and right at a rather high price (high by my standards, anyway).
It was during the summer that Linden Lab announced their intention to rapidly bring more land into the SL world in order to ease the land shortage. At the time, there was a chorus of jubilation throughout the SL community, since this would ultimately make it easier (AND cheaper) for people who wanted land to acquire it.
And it was during the summer that through IGE's indiscriminate purchase of every L$ offered to them that they eventually found themselves in a position of owning >10% of all the L$ in existence. I'm not privvy to their books, but it appeared to me that they must have spent somewhere in the US$55K-60K range for all of this digital currency.
In the late-Sept/early-Oct timeframe these two factors started to come together. The business people within SL who bought and resold land for a living were finding themselves sitting on an asset that was rapidly declining in value. These business people also have considerable US$ expenses, in that they have to pay a monthly "land-tier fee" to Linden Lab for the priveledge of owning SL land. At the same time, IGE decided that enough was enough, and that they would slow down, and eventually stop their purchase of L$.
So now the pieces were in place, and it was time for people to panic. The land speculators had nowhere else to turn except to GOM if they wanted to convert their L$ currency into US$ so that they could pay their land-tiers. Bundle that selling pressure in with the fact that many other business people who had traditionally used IGE to sell their L$ were now having to come to GOM in order to sell, and the currency valuation slide was on.
Over the last week or so, this selling pressure and downward movement in the price of the L$ became a full-blown panic. Sellers were bumping into sellers, each offering their L$ for sale at a lower price than the fellow next to them. They couldn't drop their prices quickly enough.
I've heard the expression that markets are driven by two factors... fear and greed. This certainly played itself out on the micro-market that is GOM. It was greed by those with currency interests (IGE trying to out-muscle GOM for control of the L$ market), and greed by those that tried to profiteer by the runup in land prices, that drove things up. And it was fear of losing their investments that drove it back down.
As for me... I came out of it all in pretty good shape. My play on GOM is against the spread and not speculating on one direction or the other. I want the bid/offer prices to be wide enough apart so that I can make a tiny trading profit over and over again.
But damn... the insanity of a market panic is a thing of wonder to watch unfold.
- Ace
I originally invested $500 into a trading account at Gaming Open Market, which is a website that offers a marketplace for the exchange of Second Life's Linden Dollar currency (L$), and real US dollars. I'm able to eek out enough profit on this to pay the fees to Linden Lab I have to pay in order to be a part of this SL metaverse.
Basically what I do is buy low, sell high, making tiny trading profits each time, and repeat as often as possible. I know for a fact that there are many others who do this as well. We all compete against each other (which ultimately results in buyers and sellers getting the best price possible), and we create liquidity in the market, so that these same buyers and sellers will always find someone with which to do business.
One of the underpinnings of Second Life's "vision" is that it provides the framework for a real economy that exists within the 3D world itself. Linden Labs has always encouraged the free exchange of its Linden dollars for US dollars. This offers people who want to invest real dollars into Second Life the ability to acquire the L$ necessary, and also offers those who accumulate L$ in this virtual world to realize real world money as a result.
Gaming Open Market (GOM for short) is a website put together by two wonderful gentlemen from Toronto, and offers buyers and sellers of Linden dollars a place to come and create a free marketplace. Just like any real currency exchanges, people can makes bids, or ask for a certain price, and the price of the currency goes up and down as demand ebbs and flows.
Over the summer of 2004, the value of the L$ rose significantly on GOM, eventually rising by about 20-25%. This was, in my opinion, driven by 2 factors. The first was that there was a shortage of available land in Second Life (Linden Labs wasn't bringing in new land fast enough to keep up with demand). The other factor was driven by a pseudo-competitor to GOM called Internet Gaming Entertainment (IGE), which is an outfit involved in the buying and reselling of many different MMORPG currencies. IGE, during this period, was buying L$ left and right at a rather high price (high by my standards, anyway).
It was during the summer that Linden Lab announced their intention to rapidly bring more land into the SL world in order to ease the land shortage. At the time, there was a chorus of jubilation throughout the SL community, since this would ultimately make it easier (AND cheaper) for people who wanted land to acquire it.
And it was during the summer that through IGE's indiscriminate purchase of every L$ offered to them that they eventually found themselves in a position of owning >10% of all the L$ in existence. I'm not privvy to their books, but it appeared to me that they must have spent somewhere in the US$55K-60K range for all of this digital currency.
In the late-Sept/early-Oct timeframe these two factors started to come together. The business people within SL who bought and resold land for a living were finding themselves sitting on an asset that was rapidly declining in value. These business people also have considerable US$ expenses, in that they have to pay a monthly "land-tier fee" to Linden Lab for the priveledge of owning SL land. At the same time, IGE decided that enough was enough, and that they would slow down, and eventually stop their purchase of L$.
So now the pieces were in place, and it was time for people to panic. The land speculators had nowhere else to turn except to GOM if they wanted to convert their L$ currency into US$ so that they could pay their land-tiers. Bundle that selling pressure in with the fact that many other business people who had traditionally used IGE to sell their L$ were now having to come to GOM in order to sell, and the currency valuation slide was on.
Over the last week or so, this selling pressure and downward movement in the price of the L$ became a full-blown panic. Sellers were bumping into sellers, each offering their L$ for sale at a lower price than the fellow next to them. They couldn't drop their prices quickly enough.
I've heard the expression that markets are driven by two factors... fear and greed. This certainly played itself out on the micro-market that is GOM. It was greed by those with currency interests (IGE trying to out-muscle GOM for control of the L$ market), and greed by those that tried to profiteer by the runup in land prices, that drove things up. And it was fear of losing their investments that drove it back down.
As for me... I came out of it all in pretty good shape. My play on GOM is against the spread and not speculating on one direction or the other. I want the bid/offer prices to be wide enough apart so that I can make a tiny trading profit over and over again.
But damn... the insanity of a market panic is a thing of wonder to watch unfold.
- Ace
posted by Robb Swanson at 1:47 PM
1 Comments:
If fear and greed were market drivers the US economy would sky rocket ;-P I think the lindens will be more careful when adding land in the future. Also, didn't a linden state that he/she thought the linden should be trading around 4$/1000L. That was when it was over 5$ and not long before the drop.
Krashen Byrne
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