Playing Long-Term Games - The Daily Gwei #78
Reevaluate your mental model when there's blood in the streets.
Well today is another bloody day in crypto with the macro markets looking really poor as well thanks to a variety of factors (a major one being a second wave of COVID-19 popping up across Europe). Today’s piece isn’t going to be about prices of crypto-assets specifically but I wanted to talk about time preference and how having a low one will keep you sane in both the markets and in life.
Was this me playing a short-term game or being a rational actor? Probably a bit of both.
Having a low time preference basically means that you’re playing long-term games and not interested in the short-term happenings of things like day to day market movements. By having a low time preference, you are also delaying yourself gratification knowing that you’ll have even greater rewards later on if you are patient. To use an obvious recent example - almost all of the food ponzis were short-term games.
In the crypto ecosystem in general, it may feel like we’re all playing a bunch of short-term games but in reality it’s all one big long-term game. Take DeFi for example, it technically became a thing when MakerDAO launched back in December of 2017 but it wasn’t until over the last 6 months that people outside of the inner Ethereum circle really started paying attention to it. That’s almost 2 and a half years to get to a place where maybe, at best, 100,000 people are aware of DeFi. How long do you think it’s going to take us to get to 100’s of millions? Due to the nature of exponential growth, it may be fast, but I believe it’ll be a slow grind up for a while until we reach a “critical mass” - this could take 2 years or 10 - either way, it’s not going to be a short-term game or an “overnight success”.
Extending this out to the value of different crypto-assets we can see it on full and obvious display. For example, if you had been playing the long-term game with ETH and bought it back in 2015 at around $1, you’d still be up 340x+ on your money after 5 years whereas if you were playing a short-term game you would of sold this ETH at a much lower price (probably under $5). By doing this, you still locked in a 5x profit but you missed out on the 340x. Obviously there are many other factors to take into consideration when making investment decisions but there’s a reason that your friend who bought BTC in 2013 and forgot about it until 2017 outperformed you (only half joking).
Another way to think about time preference is instant vs delayed gratification. Taking a real-life example, if you want to lose weight fast you may go for the instant gratification route and try one of the many fad diets or some medications only to quickly discover that these almost never work or bear temporary results at best. If you have a low time preference and are happy with delayed gratification, you’ll stick to a proper diet and exercise regime that would take months and years to bear fruit. I have personal experience here from losing about 25kgs (55lbs) over the course of 1 year (2018 > 2019). I tried for a very long time to lose weight but I always went for the instant gratification route and never stuck to any diets (which, of course, just made it even harder to play long-term games). Then, in 2018, I put together a proper diet and exercise plan and stuck to it for a year which resulted in my weight loss + a major change in my mental model (I mostly stopped playing short-term games altogether).
So hopefully now you see why playing long-term games is almost always the better path forward. You may be feeling down about the market action today but, as they say, it’s always good to zoom out on the charts (maybe don’t do this for XRP though). Anyway, I hope you’ll stay in this ecosystem for the long-term just as I plan to do - we’re just getting started with how big we can grow this thing.
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.