On Crypto and Survivorship Bias

None of the below is financial advice, and is for educational purposes only. Always do your own research and make your own decisions.

You see a lot of success stories because the failures never make it to light

I was always an early adopter, a futurist, and loved technology. This got me into Bitcoin around 2010/2011. I was mining BTC even on an old MacBook Pro’s CPU. I also did some GPU mining. I had some BTC (at peak 2021 bull market values, 7 figures’ USD worth) that at the time was worth almost nothing, so I cashed out and treated the whole thing as an experiment.

It’s easy to look back on that and think “why didn’t I just keep buying all that time” or at least “why didn’t I just hold that BTC and sell at peak”. Of course, hindsight is 20/20. There is very little chance that even the most informed, bullish, and levelheaded investor would have just bought regularly (dollar cost averaging) and held for that long. The tooling to even try to do so was barely even in place back then!

I ended up finding a few BTC on that same MacBook Pro a few years later, in 2014. And I wanted to cash out (I believe it was around $1K USD for the first time per BTC) at an exchange called Mt. Gox — you can probably guess where this is going. I’m actually still working on getting some of that BTC back as we speak, eight years later.

The Mt. Gox experience burned me, and I didn’t really look at crypto again until late 2020/early 2021, in the midst of the most recent bull market. So much had changed! It pained me again that I didn’t just stay in the market, but again, hindsight is 20/20.

You see examples such as that trader who bought $6K USD worth of SHIB and it turned into some amount of billions. People who find BTC on old hard drives (sort of like how I did).

For every success story (many of which are just dumb luck or fully accidental), there are countless cases where people were totally wiped out.

I read an excellent book recently, called The Psychology of Money by Morgan Housel. Part of what it discusses is that you simply need to survive to take advantage of long-term market trends. Another recent read — What I Learned Losing a Million Dollars by Brendan Moynihan and Jim Paul — goes over the same concept. You can’t benefit if you aren’t even in the game.

Particularly during bear periods, the best we can hope for is just to stay afloat so we can see the next bull cycle. Moynihan and Paul’s book also mentions that there are countless ways to succeed, which in many cases are at odds with one another. But there are only a limited set of ways to fail, and preventing those should be top priority. Specifically, reducing risk of being wiped out (or forced to exit the market entirely).

On Black Swans

Yet another book that is relevant here is The Black Swan, by Nassim Nicholas Taleb. I won’t do the book an injustice by trying to restate its themes here, but overall it presents the concept of unlimited-upside or unlimited-downside (at least to zero) events.

What I’ve been trying to be mindful of is reducing exposure to negative Black Swans. This even includes things like wearing helmets or a seatbelt. You can have a sudden event with massive negative downside. Financially, the same applies — you can suddenly lose all of your coins if your CEX collapses.

With the spectacular collapses in 2022 of LUNA, FTX, Anchor, Celsius, BlockFi, and so many more, this is something to be considerate of more than ever. It’s the same idea as “holding all your eggs in one basket”.

Oh, and paraphrasing something I heard that I really liked about taking leverage — “dumb people don’t know how to use it, and smart people don’t want it”. That’s another way a lot of these entities were wiped out.

The opposite holds true and is something that can bring great opportunity — increasing exposure to positive Black Swans.

Crypto itself is full of potential positive Black Swan events. Each coin, big or small, represents a potential to skyrocket, as many have in the past. This can be fast or slow. And increasing the diversity of exposure (“luck through exposure” — a concept in the book) can increase the odds of a positive Black Swan occurring. But you can’t even take the step of exposure if you’re not in the market.

Some practical steps on protecting oneself

Own your own crypto. The saying has been said a million times over — not your keys, not your crypto. The coins may crash, but you eliminate the vector of the institution holding your crypto imploding, as had happened to so many people this year and in the past, you won’t be wiped out (negative Black Swan) in such an event.

Any self-custodial wallet is better than one that you don’t have the keys to, such as holding funds on a CEX, so there is no shame in having a crawl-walk-run approach to starting small with a MetaMask wallet, and going from there as you become more comfortable and more advanced.

A Ledger hardware wallet has been key (no pun intended) to my own peace-of-mind. For a while I was a bit averse to paying for something that I ostensibly got for free with a hot wallet, but in reality I’ve spent the same amount on a handful of ETH mainnet transactions during high gas periods.

A quick tip when transferring — send small amounts first. Do $50, $500, and so on. This will help reduce risk and increase confidence that you didn’t send on the wrong chain or the wrong asset to the wrong wallet.

One other approach I’ve taken is having a single “savings-only” wallet that does not interact with any smart contracts, and is only for receiving transactions. This is the coldest of the cold.

Finally, the transaction fees to move things into your self-custodial wallet are a drop in the bucket compared to the empowerment of actually owning your crypto, and those fees won’t be missed if a self-custodial wallet saves you.

The less your investments are exposed to negative Black Swan vectors, the more likely you are to be around when opportunities (positive Black Swans) come around, and the more likely you are to simply survive.

Thanks for reading, and as always, please feel free to comment any feedback or questions!

I only recommend products I would use myself and all opinions expressed here are my own. This post may contain affiliate links that at no additional cost to you, I may earn a small commission.