What is Black Swan Event?

A black swan is an unpredictable event that is beyond what is normally expected of a situation and has severe consequences. The name originated from the 18th century in Europe, where everyone reckoned that swans were all white. Hence, when the black swan was found by the European in Australia, it greatly changed their perspective. This concept was later applied to the financial field, such as the black swan events of the gold market from 1933 to 1934 when the American president Roosevelt announced citizens were banned to privately hold the gold, resulting in the immense depreciation of US dollars.
Characteristics

Black Swan Events have three major characteristics, including:

1. The event is beyond what is normally expected of a situation and has surprising consequences. People are commonly unable to think out of the box once they form an opinion based on rigidity, which may lead them to directly ignore or deny the events with extremely low probability. Therefore, when there is a Black Swan Event, people would be shocked by the event that overturns their perception.
2. The event always happens accompanied by unpredictable effects, which ignites resistance and doubts among people and has a bad influence on society. Worse yet, it may pose a severe threat to the stability of a country’s economy and politics; even on an international level, such as the events leading up to the infamous American “9.11” incident on September 11, 2001.
3. After a black swan event happens, it is rationalized as predictable in human nature, which means people are accustomed to seeking excuses for an unexpected event to make it more acceptable.

Famous Events

1. Russian Financial Crisis

The Russian financial crisis hit Russia from October 1997 to August 1998 when the Russian dued the ruble, defaulted on domestic debt and declared a moratorium on repayment of foreign debt. This crisis can fall into three phases. From October to November in 1997, Russia was confronted with the first financial crisis when it was affected by the impact of the Asian financial crisis. From May to June in 1998, the second financial crisis struck Russia since many investors pulled out in succession, after which the Russian government took measures to stabilize the value of the ruble. Consequently, people lost faith in the government and exchanged their ruble for the US dollars, which made the value of the ruble slump and gave a fatal punch to the stock market. It was not until 1999 that the financial crisis ceased.

2. September 11 Attacks

On September 11, 2001, 19 terrorists of Islamic terrorist group al-Qaeda hijacked four passenger airlines, two of which smashed into the North and South towers, respectively, of the World Trade Center complex in Lower Manhattan, killing numerous people, causing the collapse of the building. The other two crashed into the Pentagon (the headquarters of the U.S. Department of Defense) and flew towards Washington, D.C., separately. The event astonished the world with nearly 3000 people, many of whom were financial elites, killed in the incident.

3. European Debt Crisis

In 2002, European unified currency - Euro entered into circulation and the eurozone was founded to decrease the cost of exchange rate trading and encourage economic communication. Several eurozone member states were in a situation where the expenses were higher than the income, and were forced to borrow money from the international capital markets to stabilize domestic economic development as well as catch up with the pace of the economy of Eurozone countries. However, without the ability to repay or refinance their government debts, those countries finally beckoned the economic crisis as the debts accumulated. The European debt crisis broke out at the end of 2009 and reached a peak at the beginning of 2010. When the crisis began, countries, including France, Germany and Italy, that lent money were also affected.

Cautions

1. Be Rational and Cautious

Investors should manage risks in advance by paying attention to good and bad news with regard to finance, the additional issuance of tokens, companies’ reports and other relevant news to avoid capital loss. The emergence of a Black Swan Event often brings wild price fluctuations to the token markets accompanied with potential risks. Although a lot of countries have issued relevant risk warnings, a Black Swan Event in the digital currency industry is unavoidable. Hence, investors should be cautious, rational and prepare for the risks before trading.
2. To Know About the Latest Trends
Although the probability of the occurrence of a Black Swan Event is small, the butterfly effect it causes is huge. Given that a Black Swan Event easily appears in the finance field, investors should focus on latest news developments, knowing about the development trend of the country and the international economy, and try to avoid those unfamiliar products and industries.