How to manage Bull season psychology in crypto? Section 2

EDUCATE YOURSELF

Bitcoin is an incredibly simple yet endlessly complex animal. Your education will never be complete, but you can incrementally expand your understanding. We did a 10-episode Bitcoin Basics Series with Dazbea and Seb Bunney, and I don’t feel like we even scratched the surface!

You want to be educated for resiliency. If you have a solid grasp of Bitcoin and how it works, you will not be easily shaken. The psychology here is VERY IMPORTANT. If you understand what you are investing in, and the market is hit by an exchange failure similar to what happened to FTX, you will understand a few things that the average person may not.

• Bitcoin is unaffected
• The price drop is temporary and without merit
• Therefore, this is a great time to be accumulating Bitcoin

Now, the opposite of this is also true. When you see mainstream headlines fawning over Bitcoin, with the gains never seeming to end, and you feel like you should drop every bit of money into Bitcoin because its price is going nowhere but up—BE CAUTIOUS. I have found that my psychology is typical. I have fear when the price is getting crushed, and I have irrational exuberance when the price is rising quickly. If I do EXACTLY the opposite of what my monkey brain tells me, I find I’m often doing the right thing. That is to say, when you feel extreme fear, this is the time to buy, and when you feel elated, this is the time to sell.

Panic buying is dangerous. When you feel an uncontrollable urge to buy Bitcoin, take a deep breath. I can assure you that you will be able to buy some, and if you are feeling the urge this strongly, the market is probably ripe for a pullback. That is no guarantee, but in my experience, this has been the likely case. I am not advocating for trading BTC, not at all. I can honestly say that I have lost more BTC than I have gained by trading, and if most people are honest, they will admit the same. Trading is a skill and discipline that very few people master.
The typical psychological roadblocks that hang people up are fear and greed. Reflect on your feelings and recognize when you are experiencing these emotions. They will cause you to make mistakes. The simplest way to mitigate all of this is simply to dollar-cost average. Swan is the PERFECT place for DCA. Dollar-cost averaging takes all the stress out. Full stop. If you level into this asset at this moment and it drops to 30% overnight, ask yourself honestly: Do I have the stomach for that? Do I have the conviction for that? Do I have the educational chops to understand why the dollar price doesn’t matter in the short term? Will I panic sell? If you aren’t convicted, dollar-cost averaging will save you. You are getting the average price over a long period of time.
I have a little DCA tactic that is simple and works for me:

When the price corrects I increase my DCA, when the price gets frothy, I feather back and average in with less. Over months and years, this supercharges your average buy.

DON’T FEEL LIKE A SELLOUT FOR SELLING BTC

Have a plan and be ready to execute. My neighbor's plan is a solid place to start. Once you have doubled your money, take the initial investment out. There is a significant asterisk involved in this—What are you going to buy instead of Bitcoin? Inflating cash? The choices for where else you put your money these days are very limited. This might be controversial to many in the space, but I think it’s perfectly reasonable to sell some Bitcoin. If you have been holding for YEARS, and your stack could meaningfully make your life better, by all means, sell a portion.

Time is the one asset that is more valuable than BTC; we have a truly finite amount of time on this earth. If you hodl your BTC and then take a dirt nap, what was the point? If you can sell a portion of your stack and pay off your house, or get out of crushing debt, I think that is a sound decision. It may not be the BEST financial decision, especially if your house is on a low-interest rate loan, but it’s an understandable decision because of the peace of mind this could bring. However, you must also remember that selling Bitcoin will very likely be a painful decision in the long term.
Selling Bitcoin for toys on the other hand is not a great move. When you buy that 250k moon Lamborghini, which loses 50% of its value in 3 years while Bitcoin has gained more than that percentage to the upside, the regret will be unbearable. Robert Kiyosaki comes to mind. His book Rich Dad Poor Dad has been very influential on me, and his description of assets vs. liabilities hit home:

• An asset generates cash flow
• A liability subtracts cash flow

If you buy assets, your net worth will increase substantially on an exponential curve. If you are buying liabilities, you are simply getting poorer. If you sell Bitcoin, you will likely regret it in the long term.

TIME PREFERENCE

Time preference is a topic often visited in Bitcoin. Having a low time preference means you are willing to forgo niceties today for a better future. Every worthwhile cathedral, every classic piece of art, everything beautiful in this world has been built because people worked with an eye to the future, not the present. If DaVinci taped bananas to the wall we would have never remembered him. If the great pyramids had been built of clay, they would be gone. If Civilization spent all of its wealth on the here and now without investing in the future it would not last.
Bitcoin itself is a digital artifact that has been crafted to perfection by a mysterious architect. It is designed to last eons; if civilization lasts, it will have perfect fidelity into the future. Because no one can change it or control it, Bitcoin is anti-entropic. This is the epitome of low-time preference craftsmanship. Bitcoin is a Da Vinci in a world of bananas taped to walls. It's so apparent once the work is put in that it’s embarrassing more people don’t understand the value proposition.


In stark contrast to this Bitcoin masterpiece, we have the sand hills we call alt-coins or shitcoins. These have been built using Bitcoin's technology but introducing entropy. Fidelity is lost in altcoins because each has a founder or group who controls them. When humans can control something, they inevitably manipulate it to their benefit. And whether consciously or subconsciously, it will degrade. Most of these shitcoins have been designed from the outset to scam you. Some of these alt-coins have leadership that may be well-intentioned, but they are human and capable of being influenced and coerced. The problem is LEADERSHIP. Bitcoin and its time chain have been designed to remove the human element as a primary characteristic. Introducing humans into the mix causes entropy to destroy value through seigniorage.
Bitcoin's invention was that of NON-INTERVENTION by humans.
These are insights that take years for many people to understand completely. If you want the TL;DR on altcoins, it’s simple. Just don’t bother. You are better off taking your money to a casino and playing craps. The deck is stacked heavily against you in the crypto world; you are simply getting lucky if you make money. Take the low-time preference route and stack Bitcoin while learning as your investment grows. I can confidently say that you will be much further ahead in 5 years dollar-cost averaging into Bitcoin than you will be gambling on shitcoins.

This is a guest post by Josh. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Josh is a career firefighter/paramedic who has been interested in finance and economics for over a decade. He discovered the value of Bitcoin in 2017 and has become more resolved in its world-changing capabilities every year since. Josh is the co-host of the Blue Collar Bitcoin Podcast alongside fellow firefighter Dan.
https://bitcoinmagazine.com/culture/surviving-the-bull-run