Crypto Investment, Cognitive Biases, and Why You Don’t Want to Become Rich Quickly

By September 15, 2018 No Comments

Crypto Investment Cognitive Biases and Why You Do not Want to Become Rich QuicklyThis article does not constitute official crypto investment advice but could provide a new perspective on which coins could potentially survive in the long-term, and which coins will be rendered obsolete. While crypto investment is a new field, there are basic investing biases that repeat themselves and there is some research to draw upon.

The altcoin apocalypse

Many have written about the altcoin apocalypse. As dramatic as it sounds, there is very much a case for sticking with mainstream established coins, even in a fast-moving and innovative industry where profits can be made. With the ongoing market rout, there is a question of which coins can survive.

But aside from the market rout, the coins that do not deliver will not survive in the long-term. Take the top 77 coins from January 2014 as an example. What can be observed is that the top coins are barely recognizable apart from bitcoin, litecoin, and ripple. Aside from this, only dogecoin, digibyte, and NXT remain in the top 100 coins. The vast majority of the rest have been eliminated.

The chances of picking the next stellar lumens pale significantly in comparison to picking a coin that will be rendered obsolete in the next four years, regardless of how attractive the ICO brochure is. And the problem has gotten worse, not better, with everybody now creating an ICO with no product, no tests, and no experience.

January 2016 saw more coins enter the market that are still very strong today – stellar lumens, dash, monero, and ethereum in particular. But again, outside of the top ten, precious few are still around.

The issues with crypto investment psychology

The crypto investment industry, and especially ICOs, have an unfortunate tendency to attract the worst types of investors. These are the types of investors who expect to make money overnight after hearing of the wonders of 40,000% increases in a year. And, in a somewhat justified fashion, they are the perfect meal for con artists who have been highly successful. There is evidence that over 78% of 2017 ICOs were scams.

People are aiming for overnight success as opposed to long-term appreciation, which is little more than a recipe for disaster. The best performing portfolios are those held by the deceased, due to the time for the investments to grow and the fact that the manager cannot move investments, meaning fees do not eat up the portfolio.

There is also the unquestionable fact that blockchain is not understood by most people, and the white papers for new cryptocurrencies are too hard to understand. People do not have the time to read or understand them and suffer from many basic crypto investment cognitive biases. To offset a clear lack of investor knowledge, it is best to simply avoid ICOs and focus on established coins with proven growth and communities, unless you really have an insight on a particular coin that other people do not.

Perhaps the greatest irony is that even though the ICO model is, at last, being regulated by the SEC, it is most likely going to be replaced with Initial Loan Procurements and other constructs. The real winners were con artists, marketers, and cryptocurrency exchanges in the 5-year ICO model (bitcoin, for the record, had no ICO and no crypto investment funding).

How to invest in cryptos for sensible, long-term growth?

Investing in coins such as bitcoin, litecoin, monero, ether, dash, and iota will yield huge dividends in the long-term if a daily timeline can be substituted with a longer yearly time horizon. They are already in use and established, and once something is in use, it is very difficult to budge it, even with a superior product.

Many computer engineers have proclaimed the benefits of Linux over Windows for decades; Neither individuals nor corporations have budged at all ( Linux is faster and more secure than Windows, not to mention free). Convenience and ease of use seem to trump technical superiority, and people use whichever they are familiar with, whether it is corrupt banks or compromised computers.

The coins above are not going anywhere. Bitcoin, litecoin, and dash are very popular and are in use in multiple regions. (iota is newer, but is the first coin to introduce a tangle and deal with the internet of things. It has a network effect in its own niche). They are what can be regarded as safe coins, and will grow with the industry, with significant present adoption, a long existence, and an active community. Once a firm base is established in “safe coins”, other exotic possibilities can be pursued – Zilliqa, CyberVein, Vechain Thor, and Metaverse ETP could be considered.

Bitcoin, ether, litecoin, and stellar lumens could be the next Google, Apple, Facebook, and Coca-Cola. They have all been solid companies on a longer timeline. It all hinges on the investing approach and financial philosophy undertaken. As always, the greatest portfolio returns are seen with time and patience, not overnight successes.

Finally, you might consider that you actually don’t want to become rich quickly, as bizarre as that sounds. People who do not establish the right attitude towards wealth, which involves long-term thinking and a set of beliefs conducive to wealth maintenance as opposed to overnight wealth creation, will find it impossible to hold onto it. This has been demonstrated on numerous occasions. It is entirely possible that over time many bitcoin millionaires will have their fortunes reduced if sensible attitudes are not developed. For crypto investment, it may be better to buy and hold good coins for the long-term, as advised by Charlie Shrem.

Digital Nomad with an interest in Zen and Blockchain technology.

Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.

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