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- 4 crypto behaviors
4 crypto behaviors
Mr. GoBrr
March 28, 2024 • Reading Time:8 minutes
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Good Morning,
I hope you have a good day.
Today, I would like to make you aware of 4 types of behaviors that crypto “investors” exhibit.
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💰Bitcoin
Bitcoin Market Cycles. (link)
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_Extreme Bull and Bear markets of Bitcoin are a feature and they speed up the adoption process - (link)
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Educational
Are you an Investor, Speculator, Trader or Gambler?
I believe that the crypto market should be seen as a means of building wealth.
However, a lot of folks in crypto, don't really know if they're actually investing, trading, betting or just gambling.
Below, I will briefly explain each of these behaviors.
-
Investing
Benjamin Graham (Warren Buffet's mentor) stated in his book “The Intelligent Investor”:
“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”
If you invest money into something without a promises of safety for your investment, then it’s speculation.
Let’s see an exemple:
Case 1
You purchase an apartment, to earn income from renting it.
→ The apartment, serves as the asset providing a promise of safety of your initial investment, witch in financial terms is called the “principal”.
→ You are incentivized to hold this investment because it generates an income for you.
→ In worst case scenario, you can sell the apartment and recover your money.
Case 2
You purchase a MEME coin.
→ A MEME coin is not a real asset that gives the promise of safety of your initial investment.
→ You bought it with the hope of making money by selling it at a higher price.
→ It’s not an asset that provides rezidual income as an incentive to hold it.
→ This is a speculation.
-
Speculation
→ Speculation, is like putting your money into something, hoping it'll grow in value, instead of just bringing you a regular income.
→ The term “speculation” comes from the Latin word "specere", which is like 'seeing' or 'having a vision'.
-
Trading
→ Initially, trading was the technique used to generate profits from the disparity between supply and demand.
→ In speculation, there's a chance you could lose everything, but trading gives you the opportunity to manage risk.
→ A profesional trader can develop strategies that provide an edge, resulting in consistent income from the market.
→ Trading is a zero sum game. If you win, someone else must lose.
-
Betting
→ It refers to an agreement between two parties in which one ends up being mistaken and the other correct.
→ More often than not, people place their bets on who they HOPE will emerge victorious, not necessarily who they BELIEVE will actually win.
-
Gambling
→ Gambling, although rooted in betting, can be approached as a profession.
→ It has the potential to evolve into an addiction due to its entertaining aspect.
→ For many affluent individuals, when done responsibly, gambling serves as a means of relaxation or entertainment.
Therefore, the role of gambling varies:
- For careful people, it can be a way of planned fun;
- For people who engage in this activity without a plan, it can turn into addiction;
- For experts such as poker players, it can be a professional career.
-
In crypto, you can perform all these activities.
This is why this market is so dangerous.
The risk exposure can be constant, triggering emotions that might lead you to actions against your best interests.
When you place a bet, the duration of your risk exposure is limited to the time it takes to determine if you've won or lost.
When you purchase a coin, your risk exposure is ongoing, which also means your losses can be continuous.
Exemple:
If you've made up your mind to leave the market with a 20% loss, your emotions can start to affect your judgement, leading you to reconsider and think, "I should hang on a bit longer, it might bounce back."
You choose to hang on, but the price plummets to -65% overnight. 🤦♂️
In the morning, in a state of panic, you hurriedly sell your holdings. 😱
The following day, the price recovers. 🚀
On the third day, you realize that not selling would have given you a 20% profit, so you decide to buy in again. 📈
On the fourth day, the price triples and you decide not to sell, thinking it will increase a lot more. 🥳
On the seventh day, the price drops drastically, and you're back to your initial amount. 😕
On the eleventh day, you've lost half your money and, out of panic, you decide to sell everything. 😭
This market changes a lot, much like a roller coaster, making it more dangerous than normal betting or gambling.
Few people realize this, but acting like a gambler in the crypto market can cause more harm than in a regular casino.
What is the correct approach?
I’ll share that with you next time.
Mr. Go Brr
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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.