Bitcoin Fools & Horses
Luck or Skill?
We hear stories of Bitcoin Believers becoming millionaires at a young age from betting on this new technology.
Such a rapid rise to financial independence can bring about two extreme feelings: Imposter Syndrome in those who succeed and Envy in those who fail.
Both have a common link: lack of self-mastery.
This article will dive deeper into the first: Impostor Syndrome.
To properly address that, it’s important to perceive the economy from a different angle.
That of Complexity.
Complexity Economics
In a famous letter to the Queen of England, “Why No One Predicted the Crisis”, the following passage is found:
“Some leading economists - including Nobel Laureates Ronald Coase, Milton Friedman and Wassily Leontief – have complained that in recent years economics has turned virtually into a branch of applied mathematics, and has been become detached from real-world institutions and events (...) the highly questionable belief in universal ‘rationality’ and the “Efficient Markets Hypothesis” both widely promoted by mainstream economists.” —Hodgson et al. (2009)
Back in the time, Central Banks’ decisions were based on the idea that the economy behaved like a simple lever than a chaotic storm.
But the truth is that the Economic dynamics are closer to the mysterious forces behind Jupiter’s Hexagon clouds than a child’s seesaw playground.
The 2008 Credit Crisis revealed the inadequacy of Central Banks’ economic models, leading to the emergence of Complex Economics as an alternative.
In another paradigm shift, the rise of Bitcoin as an alternative to the Central Bank printing machine illustrated the power of the network.
Bitcoin Complex Economics is a natural convergence of the two paradigm shifts.
Complex Economics is more than just a mere academic discipline.
It is a bold new way of perceiving and living reality.
In particular, it teaches us that:
From a complex economics lens, success is not a matter of mastering solely the dynamics of a predictable system.
We need to consider the impact of luck from the randomness & nonlinear effects, such as in Jupiter’s hexagon clouds.
Your luck break - even a tiny one - can contribute more to your success than what your ego wants you to believe.
Maintaining a humble attitude, as opposed to a “have fun staying poor” childish behaviour, is the path towards self-mastery.
Survivorship Bitcoin Bias
In World War II, the US Military looked closely at damaged aircraft and noticed a surprising pattern.
Bullets were more likely to strike certain areas of a plane, such as the wings.
Consequently, armour was added to the areas of the plane most likely to be shot at.
Until the day someone had an insight.
Abraham Wald at Columbia University proved that this conclusion was wrong.
Instead of adding armour to the most-hit areas of the aircraft, focus on the least-hit areas!
Why?
The study examined only those aircraft that managed to land safely, not those that crashed with no trace.
Survivorship Bias can mislead you.
The same principle applies when examining the success of trading in the financial markets.
We often hear the stories of people who succeeded and try to emulate their “rules toward success”.
“Survivor bias often deceives us. We are misled because we focus on the winners, the successes, and the living and lose sight of those who have lost, the failures, and the dead. By failing to adjust for survivor bias, we reach the wrong conclusions (...) survivor bias clouds our view of the past, which prevents us from gaining a clear view of the future. To be a survivor, we must not be fooled by the winners.” —David Lockwood, Fooled by the Winners
Being a finance practitioner, the first thing to understand is to know what kind of career you want to have.
Compare the career of a trader to that of an accountant.
Being an accountant is different from being a Bond trader.
Being a Bond trader is different from being a Bitcoin speculator.
The impact of uncertainty will be notorious different between them.
High market volatility means chances are your success is based on luck, not on skill.
“Survivor bias also puts a spotlight on our natural tendency to attribute success to skill rather than luck” —David Lockwood, Fooled by the Winners
Bitcoin millionaires are known for their trollish behaviour.
Suggesting they are people who happened to be in the place where things happened to be.
A generation of fools is being created on the back of Bitcoin volatility.
Bitcoin is indeed the biggest dislocation of money we have witnessed.
A dislocation towards foolishness & luck.
Black & White Bitcoin Thinking
Financial markets is the industry of uncertainty.
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And with uncertainty, there is no room for “Black and White” thinking.
HODLers are known for their unwavering “rule of thumb” to keep Bitcoin and never sell it.
The plan is to create an artificial scarcity of the market, which will drive prices higher and higher… to the Moon!
How could such a clever idea possibly go wrong?
There is a similarity between the economist who failed to predict the financial crisis in 2008 and Bitcoin holders.
Their mindset is linear & mechanical.
As mentioned in the 2009 letter addressed to the Queen, people neglect nonlinear and complex factors in their thinking.
To do so, we will require immature Bitcoin HODLers to become more aware.
And that process is nothing but confronting your ego and accepting that you might be wrong — that perhaps better alternatives exist.
“It takes inordinate courage to introspect, to confront oneself, to accept one’s limitations—scientists are seeing more and more evidence that we are specifically designed by mother nature to fool ourselves.” —Nassim Taleb
The difference between going from 0$ to $1mio and going from $20mio to $1mio is immense.
One can acquire the same level of wealth, but the first path is usually more closely tied to skills & self-mastery.
On the latter path, you blew up 95% of your original wealth, more than you planned to lose.
As a result, your confidence is wiped out and ends up in a place hard to recover from.
“The first principle is that?you must not?fool yourself and?you?are the easiest person to?fool.” —Richard Feynman
HODLers are living their dream, profiting from the success of a market that rewards “Black & White” thinking.
The question is: until when?
Bitcoin Imposter Syndrome
In his book “Fooled by Randomness”, Nassim Taleb refers to some principles for dealing with a career that depends more on luck than other industries.
I refer to three of them applicable to Bitcoin Millionaires.
They all share an expected outcome.
For many people, the experience of earning a lot of money without producing real value or mastering real skills leads to feelings of being an “imposter”.
“At any point in time, the richest traders are often the worst traders.” —Nassim Taleb
Feelings of “Imposter Syndrome often plague successful people in the financial industry.”
Deep down, these people know that they were lucky.
Confronting the feeling of being an imposter is often the only way to achieve self-mastery.
"Lucky fools do not bear the slightest suspicion that they may be lucky fools—by definition, they do not know that they belong to such a category. They will act as if they deserved the money." —Nassim Taleb
It can take courage to admit your success was more the result of luck than skill, but that is not surprising given the “chaos theory” underpinning the economy.
Like the hexagon clouds of Jupiter, there are many mysteries in life better explained from a nonlinear way of thinking.
If you’re a Bitcoin millionaire and suffer from “Imposter Syndrome”,... well, you might just be an “imposter” in your success :)
It is your power to establish a new way of living and do something useful with the accumulated riches.
Begin with building your self-mastery before helping others build theirs.
The Path Towards Self-Mastery
Bitcoin is a double-edged sword.
Initially created as a solution to the Quantitative Easing by Central Banks, it has become a corrupted system to enrich a few.
It later led to other trends, such as NFTs.
But your primary purpose on this planet is not to create pictures of monkeys that are worth more than an actual asset that benefits society in some way.
Instead, be a problem solver aligned with your values.
True success is not about ignoring the element of luck but instead understanding what part of your success is due to skill and what part is due to luck.
Only then you can gain a better sense of what you can control and whatnot.
The biggest fool is the one who does not recognize that distinction, blinded by their ego.
If you want to learn more, please don’t hesitate to DM.
Thank you for reading this newsletter!
Nuno Reis
Former Bitcoin Believer turned into a Bitcoin Sceptic.
Disclaimer:?This newsletter does not represent the views of the author’s employer and is not a financial or investment advice.
It intends to be a psychological, philosophical and systemic approach to the Bitcoin phenomenon to elevate the consciousness levels in the finance industry.
The newsletter is about Bitcoin and should not be generalised as views to the wider theme of Blockchain technology.
The writing of this article intends to be gender-neutral.
Strategic Advisor to firms in the Digital Assets industry. Former Digital Assets Product & Strategy & Commercial Leader at Bloomberg
2 年Interesting take. Enjoyed reading it