To strike it rich in crypto, you need to remain calm and stay focused on the big picture. You need to avoid reading something scary in a headline, like, say, that a famous exchange run by an equally famous crypto billionaire has totally collapsed overnight, and selling all your crypto in a blind panic.
If you do that, you’ll probably lose a lot of money and miss out on massive profits besides.
One big event like this isn’t going to make or break the future of crypto. In fact, it doesn’t really change the fundamental outlook for the asset class whatsoever. It’s a new asset class. There’s going to be trial and error. Big projects are going to collapse. Crypto will survive and stay on course.
Avoiding overreacting to big media-darling events like the FTX collapse might sound like an easy mistake to avoid, but there’s a whole world out there that’s set up just to try and make you panic. And that’s not just a dig at media, (social or traditional). It’s also part of how humans are wired.
Technology has done amazing things for human society, but on some instinctual level, we still aren’t used to it yet. Deep in the recesses of our minds, we are still out in the wilderness looking out for predators.
In other words, we’re designed to see problems wherever they could exist.
That means that humans really react strongly to bad news. We see it as naturally more important than an equivalent piece of good news because that’s how our brains try to protect us from disaster.
This carries over into our modern lives, where we have an instinct to see bad news as more important than good news. This is called “negativity bias” and it poses a huge risk for us on our quest to build a crypto fortune.
We need to be ready to avoid letting bad news take our eyes off the prize…
Beware of The Panic Reflex
It’s kind of a cliché to say crypto is volatile. It’s a new asset class with very low liquidity. With so many major holders or “HODLers” content to stay put and play the long game, not a lot of crypto is flying around on your average trading day.
That means that it doesn’t actually take that big of a sale or purchase to move the needle on price. You’ll see crazy movements one way or the other on a daily basis, and that’s where the threat of negativity bias really comes into play.
It’s actually a great day for me to be talking about this because as I sit here writing, the crypto market is getting absolutely killed. We’re seeing double-digit one-day losses on important cryptos like Ethereum and Cardano. Bitcoin is down below its high from 2017.
And I’m here to tell you all that it doesn’t matter.
Seriously, if there’s a silver lining to today, it’s that this is a perfect example of what I’m talking about. One-day losses, even one-day losses that would be viewed as catastrophic for traditional slow-moving stocks, are not going to define the ultimate story, and financial outcome, of crypto.
Letting negativity bias shock, you into panicking and getting out of the market without a good fundamental reason will mean missing out on a possible fortune.
Predictable Losses, Massive Gains
The truth is that this has happened before. It will probably happen again. If you weren’t here for the crypto crash of 2018, it wasn’t fun, let me tell you. Bitcoin shedding 75% of its value made some people wonder if crypto was finished.
It wasn’t. It still isn’t. It came back, it’s going to come back again because that’s how crypto works.
In 2013, Bitcoin saw a price above $1,000 for the first time, and that didn’t last, but eventually, we made it to a place where everyday prices blow that out of the water.
The overall narrative is that Bitcoin is the most successful asset in modern history, and remains so in spite of recent losses. At the same time, Crypto as a whole represents a cutting-edge new asset class that has at least 10x gains left in it overall to even reach the value of a relatively stagnant asset class like Gold.
Negativity bias would make us forget these fundamental advantages. It would make us panic, and wonder if maybe crypto is finished. It would make us cash out too early, and miss out on what might be the last chance ever to make a fortune.
That’s why we need to overcome negativity bias, hold our nerve, ignore the day-to-day insanity, and focus on the big picture. That big picture looks bright. How bright? Well, gold has a market cap of over $11 trillion despite almost none of it being used for anything practical.
Meanwhile, the total market cap of all crypto combined is just over $800 billion and has recently been closer to $1 trillion. I am confident that the crypto asset class, which has actual technical innovations and practical uses, has more fundamental value than gold.
That means that the sector as a whole has at least a 10x rally left to realize.