Pask

THE REAL EXPLANATION OF WHY SO MANY CRYPTO TRADERS BLEW UP I’ve been fascinated by the crypto saga and also people’s reactions to it. Many people try to rationalize the action and paint those involved as idiots or unskilled. There is no better book to explain what occurred than Psychology of Money by @morganhousel Most traders think blowups happened because of bad risk management or the leverage. Sure, but that’s only the first-level cause. Or if anything, it’s the symptom. The real cause is psychology. Even the best traders build risk systems, but those systems can often fail when the mind that built them starts overriding them. Risk management fails because human nature takes over when money, ego, and the social media-fueled comparison enter the equation. One notable crypto whale was on a race to $100M in profits. In anchoring to that arbitrary goal, much like I took my biggest less anchoring to an arbitrary goal, he proceeded to blew up over $60M. Neither of us are idiots or unskilled. Psychology truly drives most lapses in decision making and the biggest losses of money, not a lack of intelligence or strategy (case study - read about the Long-Term Capital Management saga) Morgan Housel wrote, “Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.” That single line explains why so many smart, experienced traders still blew up during the crypto boom. As crypto has been on a year-long surge, Crypto Twitter became filled with traders posting seven-figure or even eight and nine-figure profits. Your friends, your community, and your social comparisons in that world started to get rich very quickly - especially the most levered ones! When that happens, it triggers the most dangerous emotion of all… envy. As Housel says, “People don’t want to be rich, they want to be richer than their neighbors.” Social media makes that worse. Suddenly your “neighbors” weren’t just people you knew, they were anonymous avatars showing 100x gains and exotic cars. That comparison game normalized leverage and extreme risk. Stories of traders turning $100k into $50m weren’t warnings, they became goals. Wallstreetbets does similar. But those traders do it with massive leverage, and now many of them are gone. “The hardest financial skill is getting the goalpost to stop moving,” Housel wrote. In crypto, the goalposts were moved so far back that risk of ruin for many became an inevitability. Nothing is more powerful than ego and status. Judging our own place in that world versus where others stand comes to replace self-worth. Especially in youth and those that are most financially vulnerable. Friday’s collapse wasn’t manipulation. It wasn’t Trump’s fault. He was just the spark. It was an inevitability due to the amount of leverage built up in the system. That leverage was the result of unchecked psychology multiplied by social contagion and leverage. “Wealth is built quietly and destroyed fast,” Housel wrote. And crypto proved it. If you don’t master your psychology, no system will save you. Markets don’t punish ignorance as much as they punish emotional inconsistency. If you haven’t read The Psychology of Money, it’s one of the most important books for traders to understand why behavior, not intelligence, determines survival. And Morgan Housel’s new book The Art of Spending is out now. I’m reading it and loving how it explores what to do once you finally master making money. Stay safe this week everyone 🙏