A real life depiction of a first-class crypto newb as he apes into a low-digit shitcoin, “bEcAusE iS cHeAP”.
Phase #5 | Outcome Bias
Your bitcoin maximalist friend tells you that your low-digit shitcoin is a bad investment. He explains that over half of the entire supply of this shitcoin are owned by the issuing company, who derives almost all their profit by dumping their newly minted tokens on retail investors. He also explains that this company is currently facing legal action from the SEC for securities fraud.
But, as the saying goes in crypto, “scams pump the hardest”, and you see your shitcoin outperforming everything for the next few months.
Your friend tells you that, “you should denominate your shitcoin in BTC terms, and when you do this, your shitcoin typically underperforms in the long run”. He tells you that, the “market can remain irrational longer than you can stay solvent” and that you should be aware of something called wash trading. But you incorrectly cite the efficient market hypothesis and tell your friend he is full of shit.
This is known as the outcome bias: the tendency to evaluate a decision based on its outcome, rather than on what factors led to that decision (through unit bias, for example). Just because you won a bunch on money in Vegas, doesn’t mean gambling your money was a smart financial decision and something you should continue doing.
Phase #6 | Confirmation Bias
It’s 1:03 AM and you tweet your deep and meaningful insight to your bot followers as your shitcoin pumps 20% in a day: “To the moon! Next generation blockchain baby!”. Your newsfeed is rife with bullish shitcoin sentiment and any negative news on the matter, you simply dismiss them as FUD campaigns.
Congratulations, you are now a fully-fledged shitcoiner.
Despite your friend sending you well-researched critiques, you perform the mental gymnastics to turn this into a bullish narrative for your shitcoin. Because proper due diligence is a joke.
This is known as confirmation bias and is the tendency for one to search for, interpret, focus on and remember information in a way that confirms one’s preconceptions.