I've studied hundreds of cognitive biases to become a better Crypto investor.

Here are the 14 most important ones:
Have you ever:

• Fomo'ed into a COIN at all time highs?
• Sell your bluechips for shitcoins?
• Lose 50% on a coin, and lose another 45% bc you didn't cut your losses?

That's cognitive biases working against ya.

They're "thinking" errors aka bugs in your brain.
/1 Unit bias

People prefer to buy a “whole unit” of a token, rather than a fraction of it.

It's why meme coins exploded.

Don't overweigh the value of a token because it's "cheap."

Understanding how market caps work.
/2 Anchoring bias

Over-reliance on the 1st piece of information you have.

You heard about Bitcoin at $1,000.
You missed out.
Then it GOES UP to $5,000.

You don't want to buy it anymore. It's "too expensive" in your head.

Evaluate it based on its POTENTIAL not its PAST.
/3 Confirmation bias

You only seek out information that tells you what you want to hear.

You only follow people that say good things about X coin.

You unfollow and block anyone that spreads “FUD.”

When you invest, seek and research the FUD to see if it's valid.
/4 Sunk cost bias

A cost that has occurred and can't be recovered.

We have a tendency to keep investing more money or OVER-committing because we're scared of losing our original investment.
Sunk costs in real life

You've invested $10k into your friend's Frozen yogurt shop. It's doing horrible.

"I need another $5k for a milkshake machine"

You might be tempted to invest more to "save" your $10k.

Don't throw good money after the bad.
Sunk cost in Crypto

You're -70% on a coin.

You still have 30% left.

That's 70% is gone.

That 30% could be better off investing somewhere else, rather than hoping the original investment bounces back.
/5 Loss aversion

Losing money feels worse than gaining money.

Anyone that has been in Vegas knows what I'm talking about.

Winning +$100 does not feel the same as losing $100.

Losing is painful.

A study shows that the brain typically assigns 2.5x to a loss.

+250 = -$100
An example is when your investment is down 50% and there's more bad news.

You can close the trade and cut your losses.

Loss aversion means some ppl will PREFER to wait it out.

They're afraid of "losing" the money by selling.
Loss Aversion leading to risk avoidance

There has been a handful of rugs in DeFi.

I've seen some ppl vow to never invest in DeFi again!

Their loss aversion means they'll be missing out on life changing gains.

Weigh the risks vs rewards properly.
/6 Recency Bias

We overweight RECENT information and events.

"ETH's price is boring. I'm going to chase after low cap coins"

Then they get wrecked in bear markets.

You can beat recency bias by zooming out on the charts.
/7 Overconfidence Bias

We overestimate our own abilities.

We get lucky a few times, and think we're smarter than we really are.

The key to beating Overconfidence is solid risk management strategies

/8 Endowment Effect

You become emotionally attached to your bags.

We place a higher value on an investment because we own it.

I see this a lot with ETH maxis.

They made great gains with it, and become emotionally attached.

They ignore all other L1's.
How to Beat The Endowment Effect

Zero based decision making.

"If I didn't own this investment, would I invest in it today?

This keeps your decision more neutral.
/9 Survivorship Bias

Brad Pitt moved to LA and was a waiter before becoming a movie star.

Many people have followed his path hoping to do the same.

You don't hear about the THOUSANDS of other ppl who tried the same and failed.
Someone turned $8,000 of Shiba Inu into $5.7B.

You don't hear about the thousands of others who turned $8k into $500

The media prefers writing about the winners, and this skews your perception of the odds.

Plottwist: I am Brad Pitt
/10 Narrative Bias

Humans love stories. It helps us make sense of the world.

Some coins explode BECAUSE of the story.

Remember GameStop last year?

It was a revolution against Wallstreet. Ppl invested for the NARRATIVE.
/11 Herd Mentality Bias

Investors’ tendency to follow and copy what other investors are doing.

They are largely influenced by emotion and instinct, rather than by their own independent analysis.

If you've ever felt FOMO, it could be because of herd mentality
/12 Availability Heuristic

You make judgments based on how easy it is to remember information.

After major airplane crashes, there's usually a fear of flying.

However,
• 1 in 9,821 die in a plane crash
• 1 out of 114 die in a car accident

Planes are much safer
In Crypto, the availability bias presents itself in marketing.

A coin might be pumping because it has great marketing.

Marketing is important, but make sure that it isn't masking a terrible project.
/13 Outcome Bias

Outcome bias is an error made in evaluating the quality of a decision when the outcome of that decision is already known
Imagine going all in with AA vs. JJ in Poker, and losing.

You made a GREAT decision but it let to a BAD outcome.

(AA has 80% chance of winning in this case)

You invest $10k into a shitcoin that is now worth $100k.

That had a great outcome, but it was a poor decision.
Another angle of Outcome Bias

Imagine if the scenario was replayed a thousand times.

You have to account for variance.

You can do everything right and the outcome STILL won't be right.

That's life.

But you should always make the decision with the best ODDS and PROBABILITY.
/14 Authority Bias

This is our natural tendency to follow the leader.

Once we believe someone is an expert, we trust everything they say.

"They're the expert, they must be right!"

• Experts can be wrong
• Experts can have ulterior motives
How do you stop Cognitive Biases?

Well, you're already doing a great job. At least you're aware of them!

Here are some strategies I use to lower the damage of cognitive biases.
Call Them Out

My friend bought $100 non-refundable tickets to see a show.

He had the chance to do a consulting gig that night for $500.

He didn't want to lose the $100 he spent.

I told him that the sunk cost bias was affecting his decision making.

(I'm fun at parties btw)
Develop a Cognitive Bias checklist

Whenever I'm making an investment decision, I go through my cognitive biases checklist.

This keeps me aware of my own thinking flaws.
Consider creating your own Systems for investing

Formulas can help keep your emotions in check.

Keep a trading log.

I keep a Google Spreadsheet that contains all my trades.

Besides the financial data, I also write about some of my thesis.

If I exited early, I will write down any issues I faced.

BTW, it's in my plans for me to create a free template for you.
Use Cognitive Biases to Your ADVANTAGE

Understanding cognitive biases mean you can profit from others.

A coin that has a good narrative + charismatic leader + marketing (availability bias) + herd mentality

The more cultish, the more profit potential.
Just make sure you take profits along the way.
Here are some additional resources if you want to study cognitive biases more.

It's well worth the effort.

@farnamstreet
@sahilbloom

Books:
• The Art of Thinking Clearly
• Thinking Fast & Slow
• Thinking in Bets
If you liked this thread, you’ll also like my weekly newsletter.

My goal is to teach you how to become a better investor rather than "this coin will 100x next week 🤯🤯🤯"

Subscribe below, it's free.

TheDeFiEdge.com

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More from @thedefiedge

Feb 7
gm.

I once met a champion athlete and asked him his best advice for success.

"make a schedule. stick to it."

He created a schedule for sleeping, training, and studying.

He didn't deviate from it no matter how tired or out of it, he was.
I've adopted this mentality.

I'm full-time in Crypto. It's easy to waste the entire day in discords / Twitter.

But I have a daily schedule.

• 8 hrs sleep
• 3 hrs content writing
• 5+ hrs research
• Gym 6x a week

I've built a structure and I stick to it, not 100% perfect
I will share my research process one day.

Basically, I have an ongoing list of topics that I don't understand.

Ex. Right now, I have no idea what is going on with Tomb / 2omb / 3omb thing.

So I'll structure a few hrs, and gather up everything. Then go into notetaking mode
Read 4 tweets
Feb 2
The right DeFi tools can help you find alpha and save you hours each week.

Here's a collection of the best FREE tools in DeFi:

(Some of which you've never heard of before)

🧵
/1 Track Your Portfolio Automatically

Easily track your portfolio by connecting your wallet and adding addresses.

My personal favorite is @zapper_fi

Other great ones:
@debankdefi
@zerion_io
@ape_board
/2 Monitor Whale Wallets

@debankdefi has a ranking of different top wallets.

I monitor Whale wallets to see what they're investing in.

Create your own with a spreadsheet.
• Find your favorite protocols.
• See what the top wallets are.
• Reverse engineer.
• Profit
Read 20 tweets
Jan 31
Here's everything you need to know about risk management in Crypto:

• Risk Management Frameworks from business, trading, and poker

• Risks in DeFi you're not even aware of

• Reducing risks w/o sacrificing too much yield

🧵
DeFi has around been around 1.5 years.

It carries many risks that TradFi doesn't.

And the most dangerous ones are the ones that even haven't happened yet.

The best way to understand them is a framework called “Known, knowns” made famous by Donald Rumsfeld
Known, knowns

These are the risks that you are aware of and can prepare for.

Every DeFi project has smart contract risks.

How do you lower this risk?

You prepare by seeing if it has passed audits.

If it’s a fork, you research to see which project it was forked from.
Read 28 tweets
Jan 27
The Co-Founder of Wonderland, @0xSifu, has been Doxxed.

He is Omar Dahani / Michael Patryn.

A Convicted Felon /w two DECADES of frauding people.

Here's what I found out: 🧵
/1 Sifu's Role

While Dani is the “face” of Wonderland, @0xsifu runs the day-to-day.

He has control of the treasury and makes the decisions.

Wonderland is a DAO. The community voted to KEEP Sifu as the treasurer a few months ago.
/2 Sifu's Background

It’s common for founders to be anon due to privacy and safety reasons.

What are his qualifications to run a $1b treasury?

Here's his background in his own words

• Limited partner at a Large Fund
• Built several startups including 1 that went public
Read 20 tweets
Jan 26
There's a marketing proposal for Wonderland.

There was some discussion on refreshing the brand and logo. (falling Marge Simpson isn't popular)

I hired a few branding experts and designers to get the ball rolling.

Here's what we came up with so far:

🧵
/1 A more accurate Alice

I wanted to make some slight tweaks to the existing logo.

• The Woman falling looks more like Alice.
• The font's name is Alice
• We added a slogan.

Anyone that's invested in this has gone down the rabbit hole, a nod to the tale.
/2 The Cheshire Cat

The Cheshire Cat is on our homepage.

So we did a combination of the Cheshire eyes + Wonderland in the shape of the smile.

Credit: fellow frog @rashadgr_ (caymedia.ky)
Read 5 tweets
Jan 26
MAJOR FROG NATION ALPHA

There is a proposal to COMBINE Wonderland and Abracadabra into ONE protocol.

@danielesesta conducted an AMA on the proposal.

• Details of the merger
• The upside for both protocols
• The # and $
• What I think of it

Here's the alpha:

🧵 Image
/1 Wonderland Today

• They used rebasing as a tool to raise $835m in its treasury

• They have started investing in projects such as $BSGG and $CFA and soon Wormhole.

• Their treasury farming has been beating the market in the dip

Is Wonderland Successful?
/2 Wonderland started as an experiment.

The goal was to use OHM mechanics to raise funds, and to invest in DeFi projects.

By that metric, they have been successful.

Dani admits that the communication has been horrible.

They are working on improving it.
Read 22 tweets

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