What I Learned This Cycle

In the past 1 week, the price of LUNA has gone from $86 to 3 cents, a fall of well over 99.9%. If there were any doubt about whether or not we were into a bear market in crypto, that has now been dispelled. Like most of the crypto world, this author is #downbad, and struggling to come to terms with it. To help with this, I've decided to write a bit about what I've learned since quitting my day job a year ago to 'do crypto' full time.

1. Conviction Must Be Earned

Like poker, and probably many other microcosms of life, crypto has a way of delivering moments that make you question everything you think you know about yourself and the world around you.

When things are going great, the answers to complex questions seem obvious, every cup isn't just half-full but overflowing, and everything you touch turns to gold. Any dissenting voices (if you are lucky enough to hear one) are quickly told to HFSP, their arguments rationalised away in seconds.

When things are going bad however, there's a sensation of panic that I imagine must be a little bit like drowning. You search desperately for anything resembling solid ground. Your mind becomes your own personal Socrates/daemon, asking questions you were sure you had the answers perhaps just weeks before... what good is a Bitcoin if you can't pay for anything with it? Why is Ethereum better than a blockchain you can use for pennies? Why did you spent $25k on a picture of a golden frog??

At this point of despair, those who bought into the market while borrowing their conviction from others will be unable to answer these types of questions. They will likely follow their instinct and follow the herd, either burying their head in the sand or capitulating altogether. Unless your conviction is your own, and you can articulate (ideally from first principles) why you believe what you think you believe, it won't stay with you at those most fearful times when you and everyone else in the market is panicking.

The majority of people enter the crypto space during a bull market. Each day brings news of some coin up one million %, and so naturally you want to jump in at the deep end and find some 'undiscovered gem' which can finally net you that 20x you've been dreaming of.

The poker analogy of this would be the guy that hears about his friend making some money, and deposits $20 onto a poker site and registers an $11 tournament. Yes, he might win the tournament. No, he probably won't hold on to the money even if he does and, certainly, his time would be better spent on something else if he really wanted to make money playing poker.

In the terms that Elon Musk used with regards the pursuit of knowledge, this is trying to build a tree out of only leaves.

In order to build true understanding, you have to start from the start. In the crypto space, this means bitcoin. While it might feel like everyone in the world is getting rich except you, and you might feel like you need to pile in to whatever coin RIGHT NOW to close the gap, it's almost certainly a better idea to sit on your hands and build some fundamental understanding first. While you might be tempted to read a Twitter thread about the latest NFT mint coming up, it's almost certainly a better idea to read the bitcoin whitepaper or Mastering Ethereum first.

Only with a conviction that you can derive all over again from first principles, even during the darkest moments of market panic, can you hope to actually maintain your composure and execute on your plan.

2. Building is Better Than Speculating

As regular readers will know, I am a big fan of Naval Ravikant. His view of the world is that money is best viewed as an IOU, paid by society to those who provide value. With this is mind, the fundamental question to ask yourself (if you want to get rich) is "how can I provide more value to the world?". This encourages a radically different frame of mind than that adopted by traders, who essentially just want to know how the prices of some set of things will vary over the next relatively short period of time.

With this mindset, the price of whatever token right now becomes almost completely irrelevant.

We are living through the transition from the Industrial Age to the Information Age. Data has replaced oil as the most valuable resource in the world some 5 years ago, and we are only just beginning to see the downstream effects of global internet access on society.

In almost every industry, more work is being done by fewer people, as repetitive tasks are automated. Typically this has mainly involved low-value tasks, such as answering customer support queries or assembly line work, but gradually white-collar jobs will be affected too. If I want to make a will, traditionally this would have required the time of a highly paid lawyer, who would draft up the required documents for me essentially from scratch. While this is still true, the cost continues to fall due to large portions of the process being automated. What used to take a lawyer 5 hours now takes just 1 or 2 (and falling), while the quality of the product is likely to be rising overall as the reusable chunks of the documents themselves are continuously updated over time. Eventually (or perhaps already?) these systems will be so good that users themselves will be able to put together a high-quality legal document at little or no cost. Like a supermarket self-scan checkout, but for legal documents. Likewise for accounting, banking and insurance. Four professions (off the top of my head), once highly respected, that provided a low-volatility route to the upper-middle class, effectively destroyed in a single generation by the internet.

While this might sound vaguely apocalyptic, and you likely don't want to have a go at making an AI-enabled will-drafting software, the information economy is also offering motivated participants an exponentially expanding range of niches, within which they can provide value to large numbers of participants for essentially zero cost. Those who can:

• use an API to query large datasets
• extract what is useful to some subset of information consumers, and
• deliver it to them in a format they like

Will be to data what the oil refineries are to crude oil. While this might sound like rocket science to you now if you don't consider yourself a coder, it's something any smart, motivated person can learn to do in weeks rather than years. I am running two such refineries right now (https://twitter.com/WhaleZigZag and http://www.zkscanalyzer.com/), for a combined cost of $14/month. Neither have exactly taken off (yet), but the process of building and improving them leaves me better prepared for the next one I chose to pursue (of the dozens of opportunities I can see). Iteration number 20 will likely be better than iteration number 2.

Even if you can't code, the whole enterprise of social media is effectively people acting as information distilleries for each other on a massive scale. Therefore if you can read and understand medium articles and re-format them into Twitter threads, you can find a niche providing value as an information refinery on the internet.

Contrast this builder's path with that of speculation. While it's certainly true that the top 0.01% make huge returns, 85-90% of accounts lose money (according to the brokerages themselves, in places where they are legally obliged to advertise this fact to potential customers). While you, me and everyone else secretly believes they're in top 10% (or perhaps 0.1%..), taking the outside view it's clear that building offers a better risk:return in a world where you don't know where you lie on the distribution.

While I understand this logically, too often in the past year I've wasted my time looking at the prices of tokens and speculating about whether they'll go up, down or sideways. I'll also spent more time than I'd like to admit checking my zapper.fi, making spreadsheets or whatever else in order to essentially count up my portfolio and figure out how much I'm up or down.

An expression I used a lot while coaching poker - you don't fatten a pig by weighing it. Though there's a reflexive aspect to crypto speculating (investing, trading etc), which means that prices do affect conditions on the ground in a way that recent poker results never really affected the next hand, I've realised over time that the most reliable way to 'make it' is to create wealth, rather than trying to extract it from market participants (some of whom are most certainly smarter than me).

As I plan out how I'll (hopefully) rise from the ashes of this crash and all the paper wealth I've lost in the last few months, I return once again to the core tenet of stoicism - there is that which you control, and that which you don't. Your most important job in life is to distinguish between the two and to focus only on the former, while ignoring the later.

Loading up CoinGecko does not increase the price of whatever token, but it does bring me some number of seconds closer to my grave. While I agonise over the prospects of some token essentially in hopes of a quick buck, some 15 year old somewhere is learning the foundations of cryptography, increasing the value of what they can provide to society- today, and for the next X years.

Whilst striving to be a better poker player, I worked within a structured process, where my principle focus was to increase my playing hourly and to manage the emotions of winning/losing money. Right now, I'm lacking this structure, and my discipline in pursuing the builder's path falters when the drama of crypto distracts me from my job. This isn't crypto's fault, or anyone else's fault - it's mine. Only I can choose to spend my time in a way which adds to my value every day, and no one can stop me from doing so if I choose to.

Moving forward, I need to put in place a structure, a process which I can sustainably execute day in day out, which ensures that my skills as a builder continue to compound over time.

Reflecting on what is certainly the largest drawdown in my net-worth so far, one thing I realise is that I am sensitive about it mainly because of it's context - if I'd lost the same amount in the poker world, I would be far better equipped to deal with it. This is because I've put in considerable time building and maintaining the mental pathways that would allow me to see the incongruences in my worldview when I felt upset about losing money playing poker.

Two keys then:

• Rededication to stoic principles as applied to the crypto space - expressed as some daily practise where I reaffirm why the prices of the tokens don't matter, and that the value I accrue personally is a function of the value I provide to the world. I provide this value by producing code and media - by solving the problems of the world at scale.
• A refocus on first principles, trunk and branches type knowledge over second hand, twigs and leaves type knowledge. Losing money is an inevitable part of life in any high-variance activity. Even bitcoin and ethereum are at all time highs only a tiny proportion of the time. When fear (or greed) reigns supreme, my judgement is clouded as what I think I believe is influenced by what I think others believe and the quality of my decision making goes down. If I can't reproduce it from first principles, regardless of what the market is doing, I don't truly know it.

What I do and what I know. What I control.

The rest is noise.

GL out there and keep building.