One of the things most vital for you to master in your journey as an investor is human psychology.
Not the aspect of psychology so that you can be a therapist or so you can become a world-class salesperson (though, those do have benefits!)
No, you need to master your own psychology, your thinking and emotions so that you don’t fall into one of the biggest mistakes that separate the punters from real investors: the tendency to conflate short-term price fluctuations with long-term potential.
As an investor, if you hope to make real money, you absolutely cannot fall into that fallacy.
The challenge is that the tendency to panic over sudden changes to your investment portfolio is easy to fall into.
Why? Because, in many cases, there isn’t much, if any, obvious connection between the immediate event and what the longer term outcome actually turns out to be.
And it’s exactly the lack of obvious connection (and, probably, a good dose of fear and/or greed) that explains why many people panic when there is any kind of volatility in an investment.
Maybe especially in crypto.
Is recent volatility grounds for alarm?
That’s a smart question to ask. To answer it, it’s important to have some understanding of some of the vital factors in investing that too many people playing in the market don’t get.
The first thing to understand is that the way that you make money, the way that you have gains in the market is with risk.
They go together. You can’t have one without the other. No risk, no big gains. And vice versa.
Knowing that, of course, means that you have to know how much risk that you can tolerate so that you can invest without panicking (because panicking causes a person to make bad decisions).
After getting that idea in mind, you, then, need to understand that, if you want to increase your returns, you also need to do two more things:
- Increase the amount of risk that you can tolerate, and
- Have a long-term vision for your savings
And it’s the long-term vision that can help you to get perspective on what is really happening, over time, in a market so that you can make rational decisions.
Having that long-term vision also helps to increase your risk tolerance because it can help you to stay calm. You’re playing the long game. The short-term fluctuations aren’t what concern you. It’s the overall big picture, the end result, that is your aim.
If you’re wondering what in the world this has to do with investing in crypto, that’s exactly what we’re talking about next.
Understanding and mastering your investing psychology
If you’ve been paying attention to the crypto markets, you know that there have been recent fluctuations.
Those fluctuations have made the punters, the gamblers, the memecoin chasers and the speculators, well, nervous about the entire crypto asset class.
But they’re only nervous because they’re expecting get-rich-quick easy money without risk. And the world just doesn’t work that way.
But if you have a long-term perspective on what you’re trying to accomplish with your investments, then, what’s going on in the crypto markets over the last several days hasn’t phased you.
And those fluctuations really shouldn’t phase you.
Here’s my thoughts on the recent market turbulence: It’s important to view this as a tactical retreat, not a reversal.
Crypto has been here before and bounced back even stronger. Here’s why we should stay optimistic. ⤵️
A thread 🧵
— Richard Teng (@_RichardTeng) February 25, 2025
Ciaron Lyons at CoinTelegraph writes,
“It’s important to view this as a tactical retreat, not a reversal,” Teng said in a Feb. 25 X post. “Crypto has been here before and bounced back even stronger.”
Teng’s whole thread is worth reading. Other highlights:
“History has shown that crypto markets react to macroeconomic shifts much like traditional assets, but they also bounce back with remarkable resilience.”
“We’re seeing a short-term tactical retreat, not a structural decline.”
That’s right, history has shown us over and over again that, even when crypto prices stumble, their tendency is to rise again and to go even higher.
In this case, history is less than two decades. On the other hand, working in the crypto sector, I can assure you that time moves much faster (my coworkers and I describe our time in the sector in dog years).
And here’s my personal favorite:
Its true that market pullbacks can feel unsettling. But they are also moments where seasoned investors position themselves for the next uptrend.
Crypto has matured into an asset class integrated with global finance. Its ability to rebound from macro-driven dips has been proven.
— Richard Teng (@_RichardTeng) February 25, 2025
See, here’s the trick:
Its true that market pullbacks can feel unsettling. But they are also moments where seasoned investors position themselves for the next uptrend.
It’s an awful lot like what Warren Buffett, the Oracle of Omaha (and noted crypto-skeptic) said about the perversity of most investors:
To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying – except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.
Are you sad when your favorite food goes on sale? Of course not!
If you’re panicked about the stumble, though, you’ll run the risk of completely missing out on the long-term massive opportunity in cryptocurrencies…
Because you got cold feet.
In fact, the only reason I can think of to be troubled by a drop in crypto prices is if you were about to sell.
Knowing how markets (especially cryptocurrencies) perform and having your long-term vision can give you the long-term vision so that you can handle the stress of short-term dips (and make the long-term gains).
So, stop and ask yourself, “Do I have a long-term plan for my savings? If I buy and prices drop 25% over the next month, can I stand to hold on? Am I really a long-term investor, or am I a speculator?”
Be honest with yourself. There’s nobody to impress here. Your only goal in answering these questions is your own long-term financial stability.
And, of course, your short-term ability to sleep soundly.
If you find yourself checking asset prices daily (or hourly), when you’re not planning to buy more? That’s a good sign that the asset’s volatility is troubling you.
Since risk and reward are joined at the hip in finance, high potential also means high volatility. As our developers say, “It’s a feature, not a bug.”
If, after asking yourself that question, you realize that you are an investor who knows what kind of long-term returns that you want, and you want to get a better understanding of how cryptocurrencies could give those returns to you over time, then, we recommend researching that subject further with us. We’re happy to help you figure out whether crypto has a place in your retirement savings.
