How experience shapes your view of money, and crypto. — Bitvo
The psychology of money is an important part of your thought process as a trader. And your psychology is shaped in part by the financial time period when you grew up.
How you experienced finance as you grew up can impact you in ways you may not even realize.
It can shape how you trade, invest and make financial decisions.
It can shape how you see and experience crypto and the innovation that drives it.
And your experience is not like everyone else’s. There are a range of economic experiences that people can have during the same time period.
Moving through this wild period in the economy, finance, and crypto, your psychological experience is unique and an important part of your decision-making.
And the better you understand the background behind your financial decisions, the better you can make adjustments going forward.
Which brings us to a chapter from a book by Morgan Housel.
No one’s crazy?
If you’re not familiar with , he’s a prolific writer and a partner at the Collaborative Fund. His first book is called The Psychology of Money , and it is a masterpiece. When the books for crypto traders piece is updated, this will be one of the additions.
His book, while focused more on investment themes, also has a lot of unique takes that traders can benefit from as well.
But it is the opening chapter where we are focused today.
The title of that chapter is, No One’s Crazy.
This chapter takes you on an honest assessment of how people view and invest money. It could easily have described the way people view risk or innovation because all of these themes are based on the same idea.
The chapter starts by outlining the fact that our personal financial experience is a tiny fraction of a percent of total financial history. But this tiny grain of experience shapes 80% of our understanding of finance and as a result the actions that we take.
He goes on to tell a series of stories about how people’s views on finance and investing are shaped by personal life events. The way the economy was when you were young and growing up is a huge part of this. Each period had different experiences.
Former President JFK’s experience was a great example.
What Great Depression?
Housel describes how JFK responded to a question about his experience during the Depression in the 30s. JFKs response was that he had no knowledge of the Depression until he read about it at Harvard. His family had a great fortune at the time. His life was one of luxury and without want. He had no experience with the challenges of the Depression.
But this was not the experience for many others.
And that’s not to criticize one experience over another but rather to highlight that commentary, opinions, and ideas that you hear and read every day are shaped by this wide range of personal experiences.
The WallStreetBets crew, no doubt aided by other hedge funds on their side of the trade, rolled some big-named hedgies.
As the story unfolded, Matt Taibbi did some interviews with various people that had acted on this information.
The interviews were powerful. Some had seen their families destroyed during the Great Financial Crisis of 2008. Some lost family members to suicide. Others watched family businesses ruined. And as kids, there was nothing they could do about it.
But they held the bankers and hedge funds responsible for the crisis. And they wanted revenge as a result. Their revenge was to take on risk against their perceived enemy and make some bank in the process.
This is an example of the powerful influence that experience has on financial decisions.
And your financial experience also applies to the way you will see crypto.
Where did you start with bitcoin?
If you started with Bitcoin in 2009, you have a unique point of view on it. It was something new and interesting. The whitepaper talked about banking, but it was in the form of digital tokens, and everyone was trying to figure out what to do with them.
Then someone exchanged bitcoins for pizza.
That ignited the imagination of the users.
If you joined bitcoin or crypto before 2017, you have an idea of the ups and downs. But if you joined late into the runup in 2017 and ate it through the bear market of 2018, you likely have a different view of bitcoin.
The aftermath of runups is often filled with messiness and problems. Some ICOs were frauds. Lots of money was lost. And for the newcomers, the view was different from those who had been at it for a few years before.
The group that rode crypto into 2021 is going to have a different view of bitcoin than the people that joined in 2021 and got swept away in 2022.
And it’s important to remember lots of the market activity is chasing. Which is to say, people often join when the market is hot instead of when it’s not.
The experience they have is shaped by this approach to entering the market.
Attitudes about crypto depend on your experience
Now, if you reflect on where you started with BTC or ETH or whatever your entry point into crypto was, you can see your own experience.
And if we extend this out, we can reflect on the commentary that we hear around the interwebs.
The long-term diehards, the ones who have gone through the ups and downs of the last couple of cycles, are probably still bullish.
Those who joined near tops in 2017 or 2021 and got smoked might be bearish. And if they aren’t out, they might be hoping to get back to even so they can cash out without a loss.
There will also be commentary outside of crypto. Some of these talking heads deride the entire space with various putdowns.
Jamie Dimon hated it. Then JP Morgan started getting involved in blockchain. Buffet’s cranky partner, Charlie Munger, calls it a scam. But he’s got 70 years of experience in a system that is contrary to the experience of many bitcoin users.
And the period from 1998 to today has been a series of financial crises. If you’ve grown up in this period, your view of the financial markets might be one of upheaval.
Whatever your experience, you can take steps to explore what you believe and shape it for the future.
Why looking at your experience matters
Going back to Housel’s core idea, it’s good to reflect on the grain of financial history you are familiar with. For many in the crypto space, it will be a period of relative abundance, very low interest rates, and an innovation free for all.
Everything has seemed possible, but in some ways, getting ahead has seemed, at times, elusive.
But this period is only a tiny part of financial history.
There have been periods of upheaval in the past. There were periods with powerful innovations like the telegraph, electricity, the internet, fiber optic cables, and mobile communications.
Now we have networks and cryptographic, exchangeable representations of value.
Today, a new generation is reflecting on what value and money are, and how they should be used and created. They are contemplating how people can work together in global decentralized projects and how that might look.
And punctuating all this is the messy process of bringing new ideas to life.
We see that something of value requires a commitment to build and support. We can see that exchange and trade are fundamental.
But the beauty of the human experience is that it can be explored and reshaped for the future.
Shape a new future
In the book Against the Gods, the Remarkable Story of Risk, Peter Bernstein reminds us of a powerful idea. The idea is that at some point, people realized that they could bargain with the future.
The idea that you can bargain with the future means that your current and past experiences can inform but are not necessarily the defining elements of your current and future decisions. You can make different decisions today for the benefit of tomorrow using new information.
The crypto market has generated lots of volatility, chaos, and messiness. These are tough conditions to try and figure out what to do. But they have given you and everyone watching a unique look at what it takes to develop a new vision of a financial system.
This vision is far from complete.
Which is to say that today is a new day. Take the lessons of the past few years along with the experience that shapes 80% of your decisions, and see the path ahead with a fresh financial perspective.
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Bitvo is a crypto trading platform regulated with FINTRAC as a Money Services Business and as a restricted dealer with the Canadian Securities Administrators.
Originally published at https://bitvo.com on April 14, 2023.
