Markets are Dumb

Sidebar to start.  It took less than 48 hours for me to get my new FitBit.  I have rarely been this impressed by customer service.

Back on topic.

I remember reading a paper a while back saying that markets were living things.  They grow, they die, they reproduce, they merge.  All that fun stuff.  In reality, markets are dumb.  And they are dumb because people are dumb.

Not all individuals are dumb, most aren’t.  But put enough in a room and they turn dumb. (Hi Reddit).  Their ability to think for themselves is lost in the mob.  Completely rational people do irrational things with the smallest of pushes.  And markets thrive off that.

WoW’s market is no different.  There was a time where I paid a lot of attention to it, and I made a killing.  In a couple months I made near a million gold.  It wasn’t so much hard work as it was just paying attention and reading the market.  I applied a similar strategy when D3 had the RMAH.  Buy on weekends, sell on weekdays.  Maintenance Tuesday was generally a money-maker.

The WoW token is an offshoot of that market.  It generally trades at a constant clip, with only minor variances.  NA servers started Legion at around 30K then floated around 60k.  That makes sense as most people start an expansion poor, or without the distinct ability to generate profit.  Generally, you start making real money at max level and with investments in professions, dailies, or raid carries.  There are people that make money before that, but those people are actually trying.  I mean the general mass.

The token itself has 2 values.  It allows people to generate in-game wealth with real money, which should be a rather small portion of the game’s population.  (5% of 5,000,000 is still a lot of people mind you).  It also allows people to exchange time in game (gold) for real life money (subscription).  If the cost of a token seems within reach of a month’s casual play and gold making ability, people won’t bat an eye.  People generally will not “stock up” on something that’s deemed affordable.  Regular people don’t buy a year’s worth of bread when it’s on sale, because the regular price isn’t extremely high.

When the value of the token changes, as it did this week, things get thrown out of whack.  People perceive an opportunity, only a few at first.  All of a sudden they look at their gold reserves and say “hmm, I can get more for this now”.  And they start divesting their time (gold) into real life money (Blizzard tokens).  What else are they going to do with 500k of gold sitting in the bank?

You get a gold rush, a giant artificial spike in value while people transfer assets.  Once the stream of steady income dries up, things get back to normal.  It’s happened numerous times in the real market, the only difference is the amount of time it takes to get things back to normal.  It will yo-yo for another week or two, then stabilize again.  People won’t have the gold on hand, nor the time to farm 100k to get a token.  It will just be easier to pay a subscription.

What you’re left with is a market with weakened foundations.  All the time/money that was invested into WoW, is now split across multiple Blizzard games.  Make no mistake, Blizzard wins in every scenario here, as no money is leaving their system.  Tokens are worth more than a month’s sub, and every exchange following that point, Blizz takes another cut.  Time will tell if people’s gold stores will increase enough to keep the general market running, or if we’re a few months away from an overall dip in prices.  Really depends on how much actual gold was just removed from the market.

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