A Fool to Lose

Are you up, or down?

The other day, some fool (I mean this emphatically) was trying to "bring the pain" by commenting about my losses on HIVE from the All Time Highs about 6 months ago, where if you remember it touched close to 3 dollars equivalent.

Because you know... "It's better on Blurt"

Essentially, this is the approach many no-coiners take of, "How's your crypto doing" when they see the price tank by 20, 40, 70%.

Fools

The problem is, that while they are looking at the daily, weekly or monthly numbers, their resolution is too granular - they haven't zoomed out.

The HIVE chart to date:

That red area is when HIVE was trading at around 11 cents. So, when did you buy?

This obviously matters, because while a fool will see the loss from the highs, loss is tied to the spend amount, not the peak value. If 100 dollars is spent, it peaks at a value of 1000 dollars and then loses 50% - the loss isn't 500 dollars, the gain is 400, a 5x increase.

Look at LUNA - it is currently down 99.97% and 3 hours from the low - some people are up 8000% on it, as the low was 0.00000112 and the subsequent "high" was 0.00008800 - a 78x gain.

Resolution matters, doesn't it? While some people are claiming they lost their houses after it crashed from $70 all the way down to what they consider zero, others who put in a couple grand, earned a house worth of value.

Risky for sure, especially since Binance delisted it. But, this is crypto and there are plenty of people willing to take that risk as even though they are "down" from the highs, they are well and truly up from where they bought and they understand - they aren't in a loss position and see these dips as an opportunity.

Because so many people look at the highs as their "real value" of the token as if it is the new normal, they hold because they don't want to "lose" - but this is nonsensical, because the high isn't the new floor and their "loss" is actually a gain. Many fools don't understand this, mostly because they look at narrow slices of trading time, not the bigger picture.

For example on HIVE, the other "spend" is in time creating, which is a technical resource cost, but for me at least, the cost comes at not spending that same time watching TV, scrolling Twitter or Instagram or consuming sports. For some, that is a price they don't want to pay, for me, it is a price I am willing to pay - spending my time on Hive is far more rewarding than the time I spend consuming entertainment and I don't just mean because I get "paid" for it. On Hive, I get to create and for me, that is highly valuable in a world where we are encouraged to consume instead.

The factors embedded into trading and the impact human nature has on decision making and belief systems are fascinating to me, and I like observing and interacting with all the types of people who have belief systems based on what they think is correct information. Fools think they are right and more often than not, they are also the ones who like to "inflict pain" on others they believe to be wrong. Reality doesn't come into it.

But, break down the numbers and how many people in crypto are actually in a loss position? I am not talking about the value down from the highs, I am talking about the value down from the spend?

The value of a token or market cap is not a real representation of the money spent on that token, because there is only a fraction of the token liquid at any point in time and there are people who are holding large amounts that they got cheaply or for free. This means the value of a token can pump to the sun, but once one of those whales chooses to dump, it cost averages across the fraction of liquid tokens that were actually paid for and, smashes them down.

For example, there are 100 tokens and a whale owns 90, with the other 10 liquid. 10 people paid an average of 10 dollars for the 10 tokens available, so the market cap is 1000. The whale sells and because they got theirs for free in this scenario, they can sell for anything and be up. But, people are willing to demand at lower than 10, so they dump on the market and some buy at 9, some 7, some 5. The whale can get an average of say 7 for all tokens, the new market cap is down about 30% - but there is a big difference in liquidity, since for now, most of the tokens are on the markets, but there is another difference also, people are in a loss position.

The original 10 liquid token holders who paid an average of $10 for them (100 dollars in total) and are down 30% But, if we say that 90 more people bought the whale dump at the average of 7, now there are 100 holders, with 90 at even, 10 at a 30% loss for a total market cap of 700 dollars.

This is the new "floor" as the 10 in loss don't want to sell and the 90 who bought are not likely to sell at a loss, so they will hold, hoping that demand will arrive so they can sell for a profit. But more importantly, there are now 100 owners of the token distribution and no whale to dump, which means that there will be far more stability in the price, even under duress, as not all will "have" to sell at a loss or a profit.

However, if the token gets the hype train on it and experiences high demand and pushes the price to 10, 90% of holders are able to sell at a 40% profit, whilst the 10 original buyers of the 10 tokens are at a break even point. They might sell out of fear to reclaim funds or hold, wanting profit. Some of the 90 will sell at 8 or 9, some will hold out for 15, but what essentially happens is that more people will be buying the distribution at a higher price, widening the support base and increasing the floor.

Now, the "floor" is a theoretical or statistical floor based on human behavior, as the real floor is always zero. But, if we assume that people don't want to sell at a loss and will hold when down in hope; as the price drops, more people will enter into a loss position and gather their tokens, taking liquidity off the market, which increases scarcity and at some point, demand increases enough to reverse the direction.

But what is good to note here, is that while the whale sold their free stack for an average of 7, they might never be able to buy that amount of token again, as to do so, puts the price out of their reach. It is like "Pizza Guy" wanting to buy another 10,000 Bitcoin to replenish his stock - it isn't going to happen. While this whale scarcity limits the downward drops, over time it also decreases the upward volatility also, because there are more decisionmakers in the economy with a wider range of market expectations and a lower amount of tokens. Someone dumping 100,000 Bitcoin will make a dent, but how many have that amount in their wallet? Someone with 100 Bitcoin is a millionaire, but dumping 3 million worth does nothing to the market.

This means that in order to push the price up to the highs that some are expecting, it doesn't actually take as much input as what will show in the market cap, because most of the distribution is not for sale. They are pushing up a fraction of it only, but, it also means that when the price gets high enough and some of that illiquid token hits the market from the larger players, it will drop the price at a greater rate, because the volume of token outstrips the demand for it. This is obvious.

However, read the news and they will focus on the crypto markets losing 1.2 trillion in the last month or whatever, as if that money actually existed - it didn't - it was theoretical. The amount it took to get it up there wasn't 1.2 trillion, the amount it took to drive it down, wasn't 1.2 trillion exiting. They are fools and the fools that follow them believe the Hype and FUD.

But, not everyone is a fool and while a lot of people would say "should have sold", if it is a token that has an increasing floor price over time, cost averaging so that the buy average is always below the support, means unless there is cataclysmic event, it is always in profit. Or, like the markets at the moment, it could drop below the support, but as long as it survives and a person doesn't sell, it will rebound above again and the profit is there. Holding isn't stupid, but buying the top and selling the bottom is.

Now, am I in a loss position?

Definitely not!! I am well up on what I have bought in fiat, and I consider that I am also up on my time put in, because I have been putting in time and effort for a very long time. This means that I was earning when the price was 6 cents and other people said, it wasn't worth their time. Well, from there, my time has gone 800% on today's prices, making the time in the past, more valuable than it was at the time I did the work. This is the same as buying HIVE on an exchange, just using sweat instead of fiat.

How about you?

If you add up everything you have put into crypto, minus what you have taken out and then subtract that from your total holdings, are you in the red, or the black? Have you lost, or gained?

For example, you put 100 dollars in, took 20 dollars out and your total holdings are currently worth 200, you have an 80 dollar spend and have increased your value 250% - Not bad. It doesn't matter if somewhere in between when you bought and today, the total value spiked to 1000 dollars and you were up 1250%, as that is theoretical unless realized and in all likelihood, you would never have sold the true top anyway, so why use that as the baseline.

Fools will be fools.

This is not some kind of mental gymnastics to fool myself into feeling better about "losing" profits, it is just the way things work. Understanding this and then reframing expectations and reactions to the ups and downs, will bring clarity and calmness in the face of volatility. It is all about resolution and while fools might feel confident on what they see, it doesn't mean they have insight into what they don't.

We are all foolish at times.
But, that doesn't make us all fools.

Taraz [ Gen1: Hive ]