Stoicism is an ancient philosophy that teaches how to live practically and ethically with the ultimate goal of having a virtuous life.
On the other hand, cryptocurrency has only been around for about a decade and already grown to a total market capitalization of $2.9 Trillion by late 2021.
Today’s post will apply concepts of ancient Stoicism to the modern cryptocurrency market. We’ll start by reviewing the four Stoic virtues and the dichotomy of control as well as the practice of negative visualization.
But please note: THIS ARTICLE IS NOT MEANT TO BE FOLLOWED AS FINANCIAL ADVICE.
I’m just applying the philosophy of Stoicism to try and make sense of this booming industry. I’m not an expert investor. I wanted to elaborate on my experience of the past market cycle that applies directly to my background in Stoicism. These concepts might broaden your horizons, but don’t expect me to predict the market for you!
So now before we get started, you might be wondering…
Why Should I Even Bother With Cryptocurrency?
It’s a fair question. The crypto market is known for its volatility. While it’s very possible to lose money, it’s also possible to make a substantial return on your investment.
The volatility is the exact reason I got into the market in the first place. While you could lose all your money, it’s very possible that you could 5x, 10x or even 100x your initial investment. The factors I’ve personally seen come into play include:
- When you decide to buy
- When you decide to sell
- What assets you decide to buy
I formed many of my opinions around investing and the crypto market from the simple financial advice book The Richest Man in Babylon.
Timing the Market
The first two factors above have to do with timing the market. Speaking from my own experience, I first got into crypto in January 2018. That was a pretty bad move in hindsight, because the market had hit its peak and was just entering the bear market. Of course as a novice investor, I didn’t consider that possibility. It seemed like the market would continue to grow forever.
Having patience and taking time to understand the market are my two top tips for new crypto investors. Regardless of the fundamental value of your new assets, it could lose 90% of its value for years in a bear market. You simply get more bang for your buck by buying at a low price.
Crypto assets work best for people who have some spare money that they don’t need. You need to be able to ride the wave until you’re happy with the return.
“Before thou entrust thy earnings as an investment in any field, acquaint thyself with the dangers which may beset it.”
— Richest Man in Babylon
That means if you have some disposable income, you can invest it and forget about it. You won’t panic sell when your assets lose most of their value.
Taking Calculated Risks with New Assets
Anyone can easily join the crypto market today with some of the more popular assets like Bitcoin, Ethereum and Ripple. Even the meme coins Shiba Inu and DogeCoin are available on simple-to-use platforms such as Coinbase.
While the more popular assets are easier to purchase and tend to be associated with less risk, it’s also worth considering new projects that may currently be undervalued by the market. This happens when the mainstream market is not yet aware of the project.
Similar to how each Bitcoin was worth $100 in 2013, there are many projects springing up today that will be extremely valuable in the future. But how do you identify these assets? Personally, I rely on asking knowledgable contacts for advice.
“Better by far to consult the wisdom of those experienced in handling money for profit. Such advice is freely given for the asking and may readily possess a value equal in gold to the sum thou considerest investing.”
— Richest Man in Babylon
Once I get recommendations from my contacts, I continue to learn about these assets myself with the wealth of information available for free on Google, Twitter and YouTube.
But remember, kids…
THIS ARTICLE IS NOT FINANCIAL ADVICE
I’m just sharing my own take on the crypto market and applying Stoic philosophy. Crypto and Stoicism are two of my top interests, and I believe that knowing both will increase your chances of success.
So now onto the the Stoicism part of this post where we’ll discuss three core concepts that apply to the volatile cryptocurrency market.
Apply the Four Stoic Virtues
The first concept we can lend from Stoicism is eudaimonia, meaning that we thrive in our lives by being on good terms (eu) with our highest self (daimon). This can be done by “living with arreté”, or expressing our best self in every moment.
Arreté requires reason in our actions and living in harmony with our deepest values. Living in harmony with ourselves starts by understanding the four Stoic virtues: Wisdom, Temperance, Courage and Justice.
We can apply each of these to our cryptocurrency investments.
Wisdom
As we discussed in the previous section, it helps to understand the crypto market to some degree before we start investing. This was the key concept I lacked during my first entry in 2018. We set ourselves up for success by understanding the market before investing our money. Investing blindly is a fool’s errand.
As well as understanding the market movements, you should understand each of your assets before investing. Bitcoin is generally considered a safe bet in crypto, but your potential returns will not be as high. So it’s worth considering other assets as well.
Diving into the market and considering new projects could offer a much higher return, though also significantly higher risk. If you have an appetite for high risk and reward, you could take the Venture Capitalist approach. This involves investing in several projects with the idea that at least one will return 100x your initial investment over a few years.
At the end of the day, cryptocurrency investment is a sort of game where it helps to understand the rules and game mechanics. This is where wisdom proves it’s worth its weight in gold.
Temperance
Once you understand the market, patience becomes a huge factor. You should enter at a low and leave on a high.
I learned from my initial investment during the 2017/18 peak that FOMO makes you impatient. You believe the market will continue to rise when it’s on the up-swing. Luckily I held onto my initial investments and these are now worth more than what I initially purchased them for.
Due to its high volatility, you should only invest as much as you’re willing to lose. That way after you invest, you can pretend you don’t have the money anymore. You also shouldn’t sell the asset until you’re happy with the return on investment.
I personally saw my most profitable asset lose 90% of its value before the bull market pushed it to a peak of 40x my initial investment. If I had taken the money out at its lowest point, it would have been a huge loss. Instead, I waited and forgot I even had it.
Despite the market seeming to reach new highs daily, I sold most of this asset when I was happy with the return. This was an effort to cash out on my initial investment before a potential bear market comes, while still leaving some skin in the game if the asset reaches a new high.
Courage
When you buy crypto assets, regardless of it being a bear or bull market, the value will likely rise and fall daily. It’s important to stick to your long-term plan even when it’s uncomfortable. If you think you entered the market at a good time, you shouldn’t jump ship at the first signs of a storm.
If anything, you should be more excited about the project. The asset you believed in before is now undervalued compared to your initial investment, so it might be a time to increase your holdings. This is a lesson I learned after reflecting on my most profitable investment. If I had bought more at the lowest point, it would have been worth 400x its value during the peak. This is the approach I will take in the next market cycle.
Successful investors, like Warren Buffet, recommend reacting in the opposite way to the rest of the market. You should be excited when most people are fearful and cautious when most people are excited. It pays to be strong and courageous when others are weak and fearful.
Justice
Justice is the final Stoic virtue, and I think this boils down to two key components.
First, you should declare your tax returns and pay your fair share of capital gains tax when you make a profit. This will bring tranquility to your life. You will feel less anxious about potential audits from the IRS or HMRC. Paying your fair share also contributes to a better society for everyone.
Justice is also relevant to people starting their own crypto projects. There are a lot of scams out there, and it helps to be aware of this! That’s why you shouldn’t put all your eggs in one basket, especially if it seems risky. People starting their own projects should be honest, transparent and fair.
Of course, people will surely continue to use new technologies to run Ponzi scheme-style financial crimes. But modern Stoics and other virtuous people should always stay away from such unethical practices.
Applying the Dichotomy of Control
Another Stoic concept, the dichotomy of control teaches us to focus on what we can control.
We discussed the role of wisdom and temperance in timing the market, but what should you do if you’re ready to invest when the market doesn’t look favourable? Well there is no objectively correct answer here, but I might advocate for a hybrid approach.
If I’m ready to invest but the market doesn’t look ready, I might invest 5% of my available earnings into a new project just to understand the process and how it works. That is investing in practical knowledge, because I know one day I’ll want to invest. Setting up new wallets and verifying a new account can even sometimes take a few days. Doing a bit of legwork up-front even if the market isn’t ready is something I can control that will help me in the long-term.
Another key activity you can control while waiting for a good investment opportunity is learning. Learning is key, and the crypto market is so huge and growing so quickly that nobody knows everything.
Of course you can just Google it once in a while and talk to some knowledgeable friends. It also helps to join Crypto Twitter by following a few crypto-related profiles. Alternatively you can create new lists specifically for these crypto-related profiles, so they don’t take over your entire newsfeed.
Imagine the Worst Case Scenarios with Negative Visualisation
Ultimately, due to its volatile nature, it helps to think regularly about the worst possible scenarios.
This is something the ancient Stoics would do to help them think rationally in every moment. They would meditate on losing all their possessions, friends, family members and whatever else they valued. That way when adversity struck, they would be ready. This is the goal of the negative visualisation practice.
By taking the time to realize that they would be able to survive whatever comes their way, Stoics continue to face adversity bravely. We can use this concept in our long-term crypto investments.
Imagine the worst case scenario and all the money you put into crypto loses 100% of its value. How would that impact you? If you only put in as much as you were willing to lose, you will probably be ok with that. Otherwise, you might have some changes you want to make to your portfolio.
By practicing negative visualisation, we’ll be ready to hold onto our valuable assets even when their market prices drop far below the value we anticipated. Holding onto our assets during these trough periods sets us up for success during the valuable peaks.
Stoicism & Cryptocurrency in a Nutshell
The crypto market is a burgeoning industry that is set to radically change our world economy over the next decades. This a ripe opportunity for people with extra disposable income to radically increase their personal wealth. The key to success in this field is weathering out the storms of risk and market cycle volatility.
Stoicism teaches us to live our best life with practical frameworks and exercises. By reviewing the four virtues, we can apply ethical and successful practices to cryptocurrency investments. We can also focus on what we can control and continue making progress even when we’re not ready to put money into the market.
Ultimately, the negative visualisation exercise prepares us emotionally for losing all of the value from our investments. This visualisation helps us stick to our initial plans and even invest more when the market seems to have hit a new low.
The practice of Stoicism helps us stick to our initial investment strategies and use market volatility to our advantage. When we’re willing to lose it all, we set ourselves up to gain more than we could possibly imagine. It just takes wisdom and temperance.
Improve your cryptocurrency investing with Stoicism and Mind & Practice.
(Again… THIS ARTICLE IS NOT FINANCIAL ADVICE.)