Time Preferences - The Daily Gwei #336

Slowly at first, then all at once.

One principle that the Bitcoin community has been spreading for a while now is the notion of having a “low time preference”. Defined simply: someone with a low time preference will place more importance on their well-being in the long-term future rather than the short-term one. Bitcoiners say that they have a low time preference because they are investing in BTC with the goal of holding it for many years (if not decades) and by doing so they can protect themselves from the debasement of fiat over the long term (and, of course, make a gain). I think that this same principle can be applied to many different things within the crypto ecosystem.

I think that the tweet above really puts this low time preference into a tangible monetary perspective. The iPhone 6s base model sold for $649 USD on September 25th of 2015 and if you had instead put that $649 into ETH at that time, your investment would now be worth $2,481,930 (yes, that number is right). Of course, buying an iPhone had much more utility at the time and Ethereum was young in late 2015 so investing in it was very risky - but those that did have been rewarded handsomely. This is obviously an extreme example of having a low time preference but I think it works to illustrate the point quite well. On top of that, it’s quite interesting to see how dramatically the amount of ETH you could get for 1 iPhone over the years has fallen.

In crypto, many people seem to be frequently effected by recency bias which drives them to make poor investment decisions. I don’t actually blame people for this because crypto is insanely fast-paced and if you spend all day in this industry it’s very hard not to fall into a headspace where you can’t see further ahead by more than a few hours. Though zooming out can do wonders for you as an investor because it really puts into perspective just how quickly things can change when they really get going. For example, it was over 2 years before EIP-1559 hit the Ethereum mainnet but now that it’s live it has burned over 300,000 ETH ($1 billion+) in just 6 weeks. Though during those 2+ years, it certainly did feel like an eternity of waiting that was compounded even further by various other factors (weak ETH price, uncertainty around EIP-1559 actually getting to mainnet at all, lots of misinformation being spread about Ethereum etc). But those who had the low time preference and stuck through the brutality of the 2019 bear market have been handsomely rewarded both financially and socially.

There are plenty of other examples in and outside of crypto on why having a low time preference can be greatly beneficial but this isn’t to say that having the opposite (a high time preference) is necessarily bad. For example, if you’re an active trader then you’re going to be much more focused on the short-term movements of both the markets and the narratives playing out in the ecosystem because if you’re not, you could very easily get stuck in a bad trade. Though this isn’t limited to just traders - you can be a long-term investor and still use a high time preference strategy by cutting your losing investments after only holding them for a short amount of time (due to your thesis changing, the project failing etc).

As you all well know by now, I have an extremely low time preference when it comes to Ethereum and ETH. I am more than happy to wait decades to watch my thesis’ play out but I also understand that time preferences are unique to the individual. Someone who’s 40 and has a family isn’t going to have the same time preference as an 18 year old fresh out of high school. So really it’s up to the individual to figure out what time preference suits them most and then sticking to it through thick and thin.

Have a great day everyone,
Anthony Sassano

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