Information Asymmetry and Crypto Trading

Without being recognized, value is hard to shape. Just like concrete time is easy to measure, proactively spent time is the greatest form of scarcity. They only way to make more of it is by sharing it.

Modern people’s attention is money and it has not been until now that we are starting to realize that all network value can be transparently shared with every contributor in a decentralized and censorship-resistant manner.

These are just examples of the games that people play and that expose the whole complexity of any given problem: we all share some information, but we are still missing the key point in our decision-making process: we do not know how others will craft the reasoning behind their decision. This forces individuals to guess behaviors and rely on subjective intuition, even if one decision can ruin an entire career or long-term play.

Perfect rationality eventually breaks down and forces you to shoot yourself in the foot. Humans are biased into believing that they have reached the limit of the complexity of their thinking processes and that is impossible to know for certain how anyone will behave at a given point in time. Since humans are incredible machines when it comes to pattern recognition, it is in complicated, ill-defined situations that we use inductive reasoning to fill in the gaps of unknown information without blurry thoughts.

https://twitter.com/tradebutwhy/status/1495605712713809931

We hold and carry these biases, but when we are called for action, the weights assigned to each card are the result of a mindful and more rational agent that has already explored several collective actions with limited information.

• Newbies tend to get addicted to action, but the old goats understand that there is no need to play every single hand. Patience is always rewarded, whereas FOMO tends to cost you money
• Understand that you can play the hand perfectly and still lose, but you can also play bluff and win with an awful hand
• Don’t underestimate the importance of the compound effect. Zoom out and wage the appropriate number of chips for each hand
• Learn from your mistakes and find patterns in your losses. If you lose, don’t let it cascade

“El Farol” problem is extremely simple to understand: if more than 60 patrons show up at a bar, then it is extremely crowded to be enjoyed by anyone. Each patron decides independently whether to go, and only has the information of the previous week’s attendance to base their decision on.

No expectations == No pressure? Think twice about it: one slow, and one fast.

1. Understand the market participant that you are: do you have access to early deals? Can you talk to insiders? Can you move the markets?
2. Does the project you are investing in have your best interest at heart? Are you investing just for a quick 100x? Who are you planning to dump on?
3. PVP mentality: Someone has to lose for another player to win

Just remember the story of the fisherman who met the American Harvard graduate that lead an investment bank:

“I only fish for a little while, enough to feed my family”, said the fisherman, to which the banker replied, “and what do you do with the rest of your time?”. You can guess how the conversation continues. The banker proceeds to fantasize and advise the fisherman to buy a boat to catch more fish, move to a city, build a company and eventually open his own cannery, IPO… but the fisherman just does not care about all that. That would take him more than a decade in exchange for a few million, and all he wants is to take their kids to school, have lunch with them, and spend time with his family.

On a similar note, just like the early Internet, blockchain technologies promise a new era of unforeseen dynamics driven by decentralized parties that can reduce the cost of verification, interoperability…

• Cost of verification: Distributed public ledgers make the underlying information available to all participants in the network
• Digital ownership: The ability to reach consensus is an abstraction over offline rights, which at the same time defines new types of digital property
• Interoperability and composability: Open protocol standards, unlike APIs, are not created, maintained and controlled by third parties
• Portability: The guarantee that at any point in time, ownership can be stablished at the level of the individual token, thus contributing to the discovery of the social graph and driving engagement while leaving users with a substantial degree of control
• Composability: Since smart contracts can interact with each other, they can be combined in unprecedented ways, whether it is via aggregation techniques, accruing royalties, representing ownership, lowering barriers of entry…

It is complex and interconnected, even multidisciplinary…

…but it is extremely simple at the same time:

It does not have to be black or white. There is no need to be an expert in everything, but sometimes it is a good idea to understand the big principles underlying other disciplines in a multidisciplinary way in order to make good decisions.

Wisdom theory states that Mental models are the most important ideas of each science: philosophy, mathematics, physics, statistics, engineering, chemistry, biology, psychology, economics and history. In crypto, one needs to understand trading, psychology, game theory, cryptography, decision making, cognitive biases, macroeconomics, memes…

Mental models do not tell you what to think. Instead, they teach you how to think in a critical way.

In the end, we are just contemplating how a vibrant community of developers, artists, and entrepreneurs are charting the future of a token whose blockchain storage represents the challenges and rewards of a new world.