Hoarding Bitcoin is actually the result of repeated decision-making; others find it simple because they only see the results and not the decision-making process.
People often say: investing is against human nature. Indeed it is.
We often have to make decisions that go against our feelings. For example:
·In the long term, I am so optimistic about Bitcoin; why do I only invest thirty percent?
·In the short term, I believe Bitcoin will likely drop, and it may even be halved. Why not sell first and buy back later when it drops?
·Since other coins can also rise hundreds or thousands of times, why shouldn't I even touch them?
These may seem counterintuitive, but they are all well-considered results. The ability to conquer feelings with rationality is a necessary quality for an investor.
Those who have been hoarding coins until today are actually not simple. Because, over time, we will repeatedly struggle with ourselves, entangled between hoarding and selling.
I have always told everyone to hide their private keys deeper. Because only in this way can we avoid making mistakes impulsively. However, hiding private keys can only delay the time.
After the impulse, if we cannot consider all issues clearly and make a decision that convinces ourselves, we will eventually still not be able to hold onto Bitcoin.
So how are those counterintuitive decisions made? The topic of decision-making is really too broad, and there are many books discussing it in the market. Here, I will share only the simplest method.
You only need to understand a bit of probability theory, comprehend the concept of expected return rate, and know how to calculate it.
This method consists of three steps:
·First, list all the possibilities for a certain option;
·Then, calculate its expected return rate;
·Finally, compare each option to see which has the highest expected return rate.
Let’s look at a few examples:
Example 1: The vision is so big, but the investment is so small.
In fact, the amount of investment varies from person to person. Some people can bear a stronger psychological burden and can invest 50%; others with a weaker psychological burden can invest 10%. Overall, it is not recommended to exceed 30%.
Based on the results we calculated earlier, 20 years from now, Bitcoin will rise to 160 million yuan. Since this is the case, why do we invest no more than thirty percent?
Because Bitcoin is still in the experimental stage, the risks are still high. Now, let's assume that the probability of Bitcoin's success is 10%. In fact, this probability value itself is not important; what matters is to remember that it is not a certainty of success.
Now, let’s calculate the expected return rates for holding coins and not holding coins. The input conditions are as follows:
·10% chance of Bitcoin succeeding, with a rise of 1000 times, i.e., a return rate of 100000%.
·90% chance of Bitcoin failing and going to zero, i.e., a return rate of -100%.
So,
·The expected return rate for hoarding coins: 10%×100000%-90%×100% = 10000%-90% = 9010%
·The expected return rate for not hoarding coins is: 0%
Clearly, we should hoard coins. The probability of Bitcoin's success is small, but once it succeeds, it will be a significant matter. Moreover, the probability of Bitcoin's success is definitely not just 10%; there should be at least a 30% chance. I deliberately wrote it pessimistically to tell everyone that even with only a 10% chance, Bitcoin is still worth owning.
But can we invest all our funds? Obviously not, because in the long run, it is very likely to go to zero. While it is important to achieve financial freedom as soon as possible, it is also important to ensure that our current life is not affected.
The optimal decision should be to take out a portion of funds to hoard coins, recommended not to exceed thirty percent, and definitely not to exceed fifty percent. We will continue to discuss this issue from a psychological perspective later.
If everything goes smoothly, after a bull market, you will nearly be fully invested. Because the thirty percent of funds you invested has multiplied many times. At that time, it won't be too late to experience the feeling of being fully invested.
Even if everything goes wrong and Bitcoin unfortunately goes to zero, you can use the remaining seventy percent of your funds to invest in anything, and you will quickly recover your losses. It won't affect your life at all.
Example 2: Bearish but not short.
According to the analysis (Hoarding Bitcoin: Finding the Right Buying Opportunity), we may be welcoming the third best hoarding opportunity in history. We are likely to enter a Bitcoin bottoming process, first a deep drop, then the bull market will start.
Actually, I think the market is likely to drop in the short term, but my decision is not to sell coins.
Many people cannot understand this decision, thinking that I either lack confidence in my views or am misleading others. However, the probability of an 80% drop and not selling coins is actually not contradictory.
Assuming my outlook for the market is as follows:
·20% chance of rising, with a rise of 500%. This is very normal; we have all seen Bitcoin's rise, often several times.
·80% chance of falling, with a drop of 50%.
So, we can calculate the expected return of holding coins versus selling coins.
·The expected return rate for holding coins: 20%×500%-80%×50% = 100%-40% = 60%
·The expected return from selling coins is: 0%
Although the market is likely to drop, the expected return rate for holding coins is still higher, so I choose to continue holding coins.
The reason for this counterintuitive result is that the probability of Bitcoin rising is small, but once it rises, it is explosive; the probability of it falling is high, but at most it can only be halved.
You are sitting on a high-speed train heading towards the future, and the train suddenly stops. There is an 80% chance it will reverse and start again in an hour, and a 20% chance it will suddenly take off, and if you miss it, you won't be able to get back on. Would you get off to play for an hour, betting that the train won't suddenly start?
It is advisable not to gamble; that one hour of play may not yield anything, and if a low-probability event occurs, the consequences could be serious.
For Bitcoin, this low-probability event is what we often refer to as a black swan event. Once a huge crisis erupts in a certain economy, the Bitcoin train suddenly starts, and if you happen to get off, you will only be able to watch from then on.
The reason the black swan is a black swan is that it cannot be predicted. Since it cannot be predicted, we cannot get off.
Even if the coin price is halved, it's not a big deal; it's just losing half of thirty percent of funds, and we still have ample cash to buy the dip. Just enjoy it.
Example 3: XX coin might yield higher returns, but I won't touch it.
I believe there are still many coins in the future that can rise more than Bitcoin, but just because the rise is large, I won't buy them; this is actually not contradictory.
If you have a sum of money:
Investing in Bitcoin: 20% chance of rising, with a rise of 500%; 80% chance of falling, with a drop of 50%.
The expected return rate is: 20%×500%-80%×50% = 100%-40% = 60%
Investing in XX coin: 10% chance of rising, with a rise of 1000%; 90% chance of falling, with a drop of 90%.
The expected return rate is: 10%×1000%-90%×90% = 100%-81% = 19%
Still, the expected return rate for investing in Bitcoin is higher. It seems that XX coin may have a higher rise, but its probability of crashing is also higher. Moreover, on average, out of 100 coins, it would be good if even one coin's rise exceeds that of Bitcoin.
Moreover, you may buy many kinds of coins, some of which will rise, with increases surpassing Bitcoin, but others will definitely go to zero. Therefore, it is extremely difficult to outperform those who only hoard Bitcoin in overall returns. Even someone as strong as Li Xiaolai, who has launched countless coins, has not been able to achieve that.
The summary of the above three examples is simply this: decision-making cannot be based on feelings.
Feeling that the market will drop and selling, or feeling that it will rise and buying heavily, is the least wise approach. The reason most early players did not hold onto their coins is that once the market started to move, they completely forgot Bitcoin's immense vision and only focused on a small bit of gain or loss, thereby ignoring the enormous risk of missing out.
As a hoarder, it's not that you can never sell coins under any circumstances. Of course, you should sell when you urgently need money. However, whether you choose to continue hoarding or sell immediately, your decision must be rational and well thought out.
Fortunately, as a newcomer, compared to the elderly, you have a huge advantage when hoarding Bitcoin.
Through (The Story of the Beginning of the Bull Market), you should have also discovered that many elderly people actually do not have much Bitcoin. If you still have some financial accumulation, taking out 10% of your funds will give you more Bitcoin than many elderly people.
Elderly people in the coin circle actually have a hard time. Because they are facing all new situations, there are no experiences or lessons to draw on, relying entirely on their own exploration, which naturally increases the probability of making mistakes. Newcomers, on the other hand, can fully draw on and learn from the experiences and lessons of predecessors, making reasonable decisions and avoiding mistakes as much as possible.
Many elderly people, after making wrong decisions and feeling too burdened psychologically, will not return to hoarding Bitcoin. They miss the greatest opportunity in life. As newcomers, everyone does not have this burden.
Looking back, writing the (Hoarding Bitcoin) series was quite coincidental. Even two months ago, I did not know I would write this. So, everyone being able to read these articles, perhaps it is fate.
