Financial arbitrage is the act of exploiting discrepancies in price by eg, traders
Similarly, cognitive arbitrage is the act of exploiting discrepancies in perceived value of information by eg, savvy marketers (scammers are the extreme outcome of this)
In crypto such cognitive arbitrage is particularly egregious given the info asymmetry, young userbase, speed of change, and relative novelty / obscuring of the tech. FDV anyone?
Some examples:
…people care too much about market cap and not enough about liquidity (eg, memecoins, low float / high FDV)
…people care too much about the names of VCs and KOLs involved in a project, but not enough about the quality of the actual team and product (eg, KOL rounds, getting a16z or Paradigm on your cap table)
…people care too much about social activity (like how active a Discord is) but not enough about the team’s own output (measured by eg, tweets, blog posts, shipping)
…people care too much about recent price trends (24H, 30D changes) and not enough about multi year price trends (especially over the duration of a bull-bear cycle)
…people care too much about supply (like token unlocks, or token burn) and not enough about demand (like actual usage demand for a token, fee takerate)
…people care too much about yields (like staking APY) and not enough about where the yield comes from (like token inflation vs actual fees earned)
—
I’m sure there’s a lot more that I’ve missed, and I’ll add more as I see them…