Cryptocurrencies do not just test your portfolio but also your psychology. In this field, you do not only compete with algorithms and market makers but also against yourself. If you manage to outsmart the algorithms and market makers, which rarely happens; then you have to fight a battle against your own fear, greed, impatience and overconfidence.

Many core ideas from the book The Psychology of Money map perfectly into crypto. The only difference with traditional financial systems is that crypto amplifies these core ideas. THis is because in crypto, volatilities are higher, narratives very old and cycles shorter. Not to forget that any emotional mistake is punished ruthlessly.

Let’s look at the seven key lessons from The Psychology of Money that I have reframed for crypto investors who want to stay sane and solvent.

1. Being rich and staying rich are different, survive first

In traditional markets, a drawdown of 20-30% feels brutal, but here in crypto; it will be a normal Monday morning. One of the book’s biggest ideas is that getting wealthy and staying wealthy require 2 different skill sets. In crypto if you want to get rich, you have to concentrate and take significant risks. And if you want to stay rich, survival is key, therefore your every action must mirror survival. This means you have to be careful about everything from position sizing, risk management, diversification, choosing investments and humility. After all it only takes one bad protocol blow up, one exchange hack or even one over leveraged trade to wipe you out. In the recent blood bath, there are people who lost everything, because they over leveraged or invested wrongly.

In simple terms, if you need one trade or investment to work well so that you remain financially okay, then you are already in trouble.

2. Compounding only works if you don’t blow up

Investors and traders should know that compounding is about time in the market not timing the market. In crypto people get the idea of compounding but they behave as if every cycle or trade is the last one ever. The people who usually do the best in crypto do not nail the exact bottom, max out trading leverage or chase every new chain/ memecoin or farm every airdrop. These people are usually very disciplined, holding assets for very long surviving through multiple cycles and letting time do the work. They are also good at avoiding catastrophic losses and hold core allocations in high conviction assets like Bitcoin and Ethereum not in memes.

Compounding in crypto is a survival game. You earn big rewards if you are still here in 5 to 10 years. Someone sells at the first sign of a draw down or crash, panicking and selling in a loss. Then someone has been holding Bitcoin and Ethereum since 2015, so who is the real winner?

3. Tail events drive most returns

Not every asset is going to be highly rewarding and create millionaires. Only a small number of assets create the majority of long-term returns. We have seen it in crypto and it has become too common. Some coins have disappeared altogether or lost large chunks of their value leaving wallets bleeding. We have seen coins that printed millions and then drop so fast that people had no chance to make a profit, while others spend years stagnating then shoot up so fast that by the time everyone starts thinking, millionaires would have been made.

Investors and traders don’t have to catch every winner; missing DeFi, meme season, L2s or NFTs does not mean you are a loser and your future is ruined. Your job is to protect the capital and avoid disqualifying mistakes. Blowing wallets on a single bad bet is worse than waiting on the next best coin. In my view, you don’t need a dozen x100 plays, a few x20-60s can still do the job over time. Sometimes it's better to grow slowly than gamble, make quick wins and lose it all a few months later.

4. Behaviour is better than IQ

Emotional control is the real edge. Discipline is an edge in crypto; this is because very few people have it. Just think about it, everyone has access to price feeds, carts, X, onchain data and AI tools. So, the problem is no longer about adequate information but about the discipline to correctly use it. Can you:

• Sit on your hands when the market is euphoric and everyone is flexing paper gains?
• Keep DCA’ing when sentiment is toxic and headlines scream “Crypto is dead”?
• Admit you were wrong and exit, instead of “doubling down” to protect your ego?

Currently, the market is red and everyone is crying, do you have the guts to follow your rules and DCA every week like you used to do? The thing is that your returns are a function of your emotional regulation as much as analysis. Imagine someone who sold everything at a loss because the price of Bitcoin dropped from $70K to $40 K and later on price moved to an ATH of over $125K.

5. Aways respect lucky but don’t rely on it

In every bull market, some people get rich very fast by being early, lucky or being reckless, or all three. The danger is in copying their risk profile and recklessness without their luck. Usually if you envy outcomes, you will fall hard on your face. Instead of envying it's better to study their position sizing, exit plans and type of portfolio. Usually winners have several assets in their portfolio and few make them rich. However, others are lucky enough to go all in on an asset or coin and they win massively.

The truth is luck is always part of the story, but it is not repeatable as a properly set out process. A process keeps you in the game after the luck fades.

6. Reasonable beats rational

Perfectly rational behaviour is rare and exhausting, so it is better to aim for reasonable. Here are a few reasonable things:

• It’s reasonable to keep some cash stablecoins even if it “drags returns.” You will need it urgently some day.
• It’s reasonable to take profits early so you can sleep at night. There is no reward in regretting not taking profit.
• It’s reasonable to under-allocate to risky small caps, even if the upside is higher.

Make sure that the strategy that you chose matches your psychology. There is no perfect strategy, choose an imperfect strategy that you can emotionally stick to and follow for years.

7. Define what is enough or markets will do it for you

The most dangerous trait in cryptocurrencies is not greed but not knowing when to stop. A sense of enough tells you when to cut losses, take profit or invest some more. Without this sense, you will overstay obvious bubbles, double down to chase losses or overleverage to catch up to gains made by others.

Defining your own enough; be it a target networth, a percentage win or a preservation point of growth will help you think rationally and make relevant decisions without too much emotion.

Final thoughts and conclusion

I do not take crypto as just a technology revolution but also as a psychological test. Thriving investors are not necessarily the smartest or the earliest. They are usually those who understand human behaviour, especially their own. Crypto is a market built on computer code, and to be honest, you are the greatest asset you have nothing else.