04. Mindset Crypto Gambler Mentality

Key Concepts

• Mindset in Crypto: Avoiding gambling mentality, focusing on systematic investment for risk-adjusted returns.
• FOMO (Fear of Missing Out): The danger of emotional decision-making driven by hype and the importance of avoiding it.
• Defining Value: Identifying assets that solve significant real-world problems.
• Correlation: Understanding the relationship between different assets, especially the correlation between Bitcoin and altcoins, and between crypto and traditional markets.
• Risk Assets: Recognizing crypto as a risk asset and understanding its place in the broader market cycle.

Mindset in Crypto: Investment vs. Gambling

The speaker emphasizes the importance of adopting an investment mindset rather than a gambling mentality when entering the crypto market. Many people enter crypto with the expectation of quick, high-return gains, similar to gambling. The speaker clarifies that the academy will not provide tips on coins that will increase 100x, but instead will teach systematic investment strategies to achieve optimal risk-adjusted returns.

• Gambling Mentality: Driven by FOMO, seeking high returns without considering the risks. Examples include "all-in" investments with leverage based on seeing others get rich.
• Investment Mindset: Acknowledging that success in crypto requires a learning process, continuous market observation, and understanding of the technology. It's a skill that takes time to develop, not an instant path to wealth.
• Example: The speaker uses the analogy of missing a train. A rational person would wait for the next train, not chase after the departing one on the tracks. Similarly, in crypto, one should not chase after already high-flying tokens due to FOMO. There will always be another opportunity.

Defining Value and Solving Problems

The speaker discusses the reasons people invest in crypto:

1. Financial Gain: The desire to make money.
2. Undervalued Asset: The belief that crypto is an undervalued asset with significant growth potential. The speaker notes that the total market cap of crypto is comparable to that of Microsoft, suggesting it is still relatively small.

Defining the value of an asset is tied to its ability to solve significant problems. Crypto addresses issues related to:

• Fiat Systems: Providing alternatives to traditional banking and financial systems.
• Financial Security: Enhancing security through digital signatures, hash functions, and blockchain technology.
• Unlimited Money Printing: Offering a hedge against countries that print unlimited money, devaluing their currency.
• Inefficient Transfers: Addressing the inefficiencies of large international money transfers through banks. Crypto allows for fast, borderless transactions without the need for intermediaries.
• Corruption in Financial Institutions: Providing a transparent and auditable system that reduces the risk of corruption. In crypto, individuals can trust themselves and their ability to secure their assets, rather than relying on third parties.

Understanding Correlation in Crypto

The speaker highlights the importance of understanding correlation in the crypto market to avoid a gambler's mentality.

• Definition: Correlation refers to the relationship between two or more assets.
• Bitcoin as the Backbone: Bitcoin's price movements significantly influence the prices of altcoins. Altcoins, regardless of their use case (DeFi, metaverse, decentralized exchanges), are correlated with Bitcoin.
• Example: The speaker criticizes the "XRP maximalist" mindset, which assumes that Ripple can remain unaffected by Bitcoin's movements. This is a flawed understanding of market dynamics.
• Impact on Exchanges: Major exchanges like Binance and Bybit are also correlated with Bitcoin. When Bitcoin's price drops, trading volume on these exchanges decreases.
• Correlation with Traditional Markets: The speaker refutes the notion that crypto has a low correlation with traditional markets like stocks. Institutional investors are increasingly involved in both crypto and stocks, leading to a stronger correlation.
• Geopolitical Risks and Politics: Crypto is correlated with geopolitical risks and political events, such as decisions made by the Federal Reserve (the Fed) regarding interest rates.
• Risk Assets: Crypto and stocks are categorized as risk assets, which are more volatile than safer assets like cash deposits and government bonds. These assets tend to move together in market cycles.

Market Cycles and Asset Allocation

The speaker concludes by stating that understanding market cycles is crucial for making informed investment decisions. The next step is to learn how to identify these cycles and adjust asset allocation accordingly. This involves recognizing the correlations between different asset classes and shifting investments based on market conditions.