So many people think they are “right” on crypto, and that’s exactly what worries me…
Disclaimer: I am a relative crypto novice. I am bullish on the value of decentralised technology in the long term, but am scared by the…
Disclaimer: I am a relative crypto novice. I am bullish on the value of decentralised technology in the long term, but am scared by the behaviour of lots of investors in the market.
“I was RIGHT! Bitcoin was going to bounce back after the Christmas lull, because [INSERT REASON HERE]”. I have heard this a hundred times, and I find it really worrying.
Lots of people are making lots of money, and they always have a reason for it — “because of X” — whether X is defined in terms of riding the hype curve; by pumping and dumping themselves; or maybe even a belief in the value of the project/ token itself. And when the token appreciates, they feel vindicated — not just that their decision was the “right” one, but that X was also causally relevant— that their reasoning was also correct.
The problem with crypto projects is, there isn’t enough clear “fact” around to validate our reasons for backing or shorting a token. This is because:
The fundamentals change slowly, or in secret. Most crypto projects are fundamentally long term plays: where the utility of a token will only be realised a long-time in the future. Even currency projects will often only function properly as currencies once capacity is increased (i.e. not yet). So the fundamental utility of a token won’t be brought to bear on token price (for better or worse) for a long time. Even where fundamentals change, a lot of the projects are fundamentally secretive, or token-owners have little to no information rights.
Trying to ride the hype wave is difficult. There is a huge amount of “froth” analysis, as people talk-up or talk-down the token for their own ends. Yes, there are big events (e.g. being traded on Coinbase), which causes enough of a behavioural shift, that calling the market movement might be reasonable, but most of the time, it’s hard to call how the market will behave.
All of this means that there is very little “fact” to prove our reasons right or wrong. And this makes it far easier to think, in light of our FANTASTIC gains, that we were right — not just right that a token will go up or down, but that the reason for our decision was also correct.
What happens when you believe you are “right”? You have more confidence that your reasoning will allow you to call the market, and so increase your exposure, your risk, and ultimately your losses, when (unavoidably) poorly-informed reasoning is found out. That’s what worries me.
I can’t help but think of the fund managers who all believed themselves fantastic at picking winners in advance of 2008, but by 2010, their long-term average performance was below the average index. Turns out that their reasoning wasn’t somehow beating the long-term average — they were just taking a different risk approach that found them out in the end…