Let’s talk about psychological traps. The current price rally of internet money will make sane people do insane things. It’s crucial to be aware of these traps, so you don’t end up losing everything you have.
1. The life savings trap. This trap is number 1 for a reason – it is the most dangerous. I know several people who lost their entire life savings to internet money. I’ll make this super clear – if you are planning to invest your entire life savings into internet money, it’s time to stop. Seriously. Stop everything you’re doing, turn off your internet, and take a holiday. When you’re on holiday, I really encourage you to think about the effect that internet money is having on you. Please understand – you can lose everything you’ve worked for. It happened to many smart people during the 2017 mania – they lost everything. If you’re trying to convince your family to invest their life savings, it’s a horrible idea, please don’t do it.
2. The “invest in small coins” trap. This is an extremely common trap that people fall into. You’re new to internet money and you notice that the top coin is very expensive. So you decide that investing in small cheap coins is a good idea because their price can increase much more than the top coin. This is FALSE. Just because a small coin costs a few cents, and the top coin costs thousands of dollars, doesn’t mean the small coin can go up more. If you were in internet money during the last mania of 2017, do you remember the small coins that were in the top 100? If you check the top 100 now, the coins are completely different. This is because the old small coins were replaced by new small coins under a new category called ‘Defi’. Unfortunately, most of Defi is hyped up garbage. Not all of it, but most of it. If you’re investing in small coins because you think the price will go up more, or go up faster, you’re making a rookie mistake. Don’t become a gambler just because you feel you’re late to the party. You’re actually not late.
3. The trading trap. Another common one. Trading internet money is a bad idea. After weeks of stress, sleepless nights, and tiny returns, you will end up losing your money to professional traders or bots. Trying to predict the short term is nearly impossible, especially if you’re not a professional. Don’t waste your time.
4. The “signals” trap. You’ve decided to join a group that gives “signals” on when you should trade a particular coin. Groups like that are scams designed to take your money by the person controlling the group.
5. The branding trap. You see a new project with a stunning name and stunning logo. The logo is so good it makes your mouth water. It’s the best logo you’ve ever seen. When you say the name, it makes you feel warm and fuzzy on the inside… This is the branding trap. Just because you like the logo of a project, doesn’t mean it’s a good project. You would be surprised at how many people fall into this trap.
6. The cult / community trap. You decide to join a community on Discord that is loyal to a particular project. Within 2 weeks, you have the project name tatooed on your forehead and you’re wearing an official community shirt with a QR code for easy sharing. The community moderator Billy seems like a smart guy, and even though he doesn’t understand computer science or economics, he seems to know what he’s talking about. There are other people like him in the community, who preach during their lunch hour and dismiss other projects with confidence… This is the cult trap. Avoid!
7. The social animal hype trap. Humans are social animals designed to follow what other humans are doing. Back in 2020 there was a period of time when I had 10 people a day ask me what I think about the project LINK. The conversation usually went like this: “What do you think about LINK?”… “It’s okay I guess. What do you think?”… “I like it”… “Why?”… “Because it’s in the news and everyone is talking about it, and it has lots of partnerships.” This exact conversation repeated with almost everyone I had it with. When something is overhyped, you shouldn’t jump on the bandwagon. Instead, try to be skeptical and try to understand what is going on behind the scenes.
8. The “I hope it will go up” trap. A lot of people from 2017 are still holding projects that have quite obviously fell to 0 or near 0. Here is my opinion, this is not financial advice or investment advice… There is no reason to hold failed projects, you’ve already lost your money. You might as well get back the 10% that’s still left.
9. The poverty gambling trap. This is an extremely common trap. You feel you’re poor so you decide that losing your hard-earned money to gambling doesn’t matter because you’re already poor, so you have nothing to lose. You cannot imagine yourself making a lot of money because you’ve been poor all your life. Deep inside, you don’t really feel you can ever escape poverty… This is the poverty gambling trap. The sad thing is, this trap keeps people poor even when they can escape poverty. The truth is that internet money is just getting started. If you buy internet money before 25 countries have officially bought = you’re early. If you buy after = you’re late. It is still early… If you’re poor and you feel that you can never escape poverty, I’m sorry but that’s not true. You can escape poverty and change your life, if you play your cards correctly (hey, stop playing cards, I told you not to gamble).
10. The bank loan trap. You’re super hyped about the recent price rally but you have no funds… Your friend Billy has been talking about Banana coin for a month, and you’re desperate to invest. So you take out a bank loan and put up your house as collateral. Within a few weeks Banana goes to 0 and next thing you know, you’re living on the street eating dog food. Please don’t make this mistake. This applies to both big and small coins.
11. The no confidence trap. You’re excited about a project. You do your research but you have no data, no experience, no connections, no knowledge. You don’t even have access to private info that is unavailable publicly. You decide to invest. Even if you get incredibly lucky and pick a winning project out of the hundreds of projects that exist, you will sell too early… You will not have the confidence to hold long-term, because deep down you know you’re actually gambling. You will never achieve a 10x, let alone a 1000x. And because of low confidence, you will not be able to invest a large amount.
12. The selling early trap. You like a project. You have access to ongoing data and top-tier professionals with experience, connections, and knowledge. You purchase research from them instead of doing it yourself. You have access to private info that is impossible to find publicly. You achieve a 10x successfully, congratulations. You decide to sell the project because what if it goes down…? This is a mistake, you’ve sold too early. This is not investment advice or financial advice, just my opinion.
13. The “I sold early, why should I buy at these high prices?” trap. If you’ve sold early in the past, it’s okay. You’re still early. Just because the old price is gone doesn’t mean you’re late. This is not investment advice or financial advice, just my opinion.
14. The founder / team trap. You’ve discovered that the founder of a hype coin is Albert Einstein, and the senior team is made up of Nostradamus, Batman, and Newton. Okay… But what about user adoption? What about network effects? Does the project eat a valuable aspect of human nature? Does the project generate value? Does it capture that value? Does the computer science make sense? What about incentive mechanisms? Does the project have inflation? Is the network secure from attacks? What are the risks? Where is the data? Are developers actively working on the project? Is the project truly distributed? I can go on and on… It’s important to recognize that there are hundreds of things that can make a project succeed or fail. A good founder / team is a good sign, but it doesn’t mean anything.
15. The overconfidence trap. You know everything. Everything you know, you know. You cannot be wrong. You like telling strangers on online forums how wrong they are, and how right you are. If you’re one of these people, please recognize that your ego has taken control over you and you’re in danger of losing your money.
16. The “this time I will do things differently” trap. So during the last mania phase of 2017 you lost 90% of your money. You made some mistakes but… This time you will “play the market” differently. Don’t fall into this trap. If you plan to “play the market” differently during this new mania, chances are that everyone else will too. I encourage you to recognize that, while you plan to change your behaviour, other people will change their behaviour too. You learn, they learn. So what happens then…? The advantage you think you have will get cancelled out, and everyone (including you) will lose their money to professional traders and scammers.
17. The lucky gains trap. There is a saying – “everyone is a genius in a bull market”. In other words, when every project is going up in value, it makes every investor look like they know what they’re doing. What happens then…? A person who invests in a hype coin and gains a percentage return or even a 5x return, purely based on luck, will forget to take profits and will end up losing their return, or even losing their whole investment. For example: you invest in a hype coin and it goes up by 60% in week 1. In week 2 it goes up to 80%, and you get really excited. In week 3, the profit falls back down to 40%, but you never lose hope because the initial lucky gains looked so promising. You decide to hold. In week 4, the profit falls to 0, and the project ends up losing 50% of its initial absolute value – at this point, you’ve lost half of your initial investment and the profit has turned into a big loss… This is the lucky gains trap.
18. The private release trap. You’ve been waiting for the private release of a new coin for months. You and your online friends are very excited to get in early. The private release finally arrives and you decide to invest a large sum. Here is what you don’t know – if you’re participating in a private release in hopes of getting an ideal price, your price is not ideal at all. This is because there are often discounted private releases conducted for big whale investors, before the official “private release”… Which means your price is not an early price at all, or worse, the early whales get to dump their coins on you and take profits.
19. The dollar / satoshi trap. You invest in a hype project and it goes up by 20% in the first week. You have more dollars now compared to a week ago. But what if Bitcoin went up by 40% in that same week? This means you gained dollars, but your dollars would have been better off sitting in Bitcoin. The 20% gave you a sense of achievement, even though you failed to outperform Bitcoin… This is why you need to calculate everything in satoshis, not dollars. For example, if you invest 10 satoshis into a project, and after a week you have 15 satoshis, this means you outperformed Bitcoin – congratulations. However, if you only have 8 satoshis after a week, this means Bitcoin outperformed your project and your money would have been better off sitting in Bitcoin. The dollar / satoshi trap may seem very unintuitive at first, but think about it for a few minutes. It’s worth becoming familiar with.
20. The online wallet trap. Never keep cryptocurrencies in an online wallet or “hot wallet”, you will lose them eventually.
21. The “insights” trap. There are services online that claim to give you regular “insights” on projects, for a few dollars a month. They are a waste of time and they don’t give any real insights. The “insights” tend to be along the lines of, “Salad Swap aims to decentralize salad swapping in a vertically integrated fashion, this week we sit down with the founder of Salad Swap, here is everything you need to know…” This is not useful information. What does it even mean? Services that have no experience in long-term investing are only designed to provide hype-based information.
22. The imposter scam trap. You’re browsing Twitter and you see that Elon Musk wants to give you some internet money… But only if you give him some first. This is obviously a scam and you’re not actually seeing a post from Elon Musk. Never give an imposter internet money in hopes of getting more back.
23. The news website trap. There are many websites that provide news about internet money. Be warned – the information is mostly noise, with little or no value.