Podcast Notes | Interview with the Bestselling Author of "The Psychology of Money": 10 Tips for Crypto Investors
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Podcast Notes | Interview with the Bestselling Author of "The Psychology of Money": 10 Tips for Crypto Investors
Even if you've been through multiple bear markets, the next one could be completely different.
Navigating Web3 tides with focused insightsCompiled & Translated: TechFlow
Morgan Housel is a partner at Collaborative Fund and a former columnist for The Wall Street Journal. He has twice won the Best Business Writing Award from the U.S. Society of American Business Editors and Writers, been twice shortlisted for the Gerald Loeb Award for Distinguished Business and Financial Journalism, and is the author of the global bestseller "The Psychology of Money."
In this interview, Morgan shares ten key lessons for cryptocurrency investors. These insights cover specific investment strategies and offer wisdom that applies not only to crypto markets but also to investing more broadly, making them a valuable resource for investors at all levels.
Hosts: David & Ryan, Bankless Podcast
Guest: Morgan Housel, Author
Original Title: "10 Lessons for Crypto Investors With Morgan Housel"
History Repeats Itself—Inevitably
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Morgan Housel firmly believes that market bubbles will persist 100 or even 200 years from now, just as they did during the tech bubble of 1999 or the housing bubble. He notes that historical bubbles, whether a century or two centuries ago, show striking similarities.
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Morgan explains that history repeats because human responses to greed, fear, risk, and uncertainty remain unchanged. Whether in finance, medicine, military affairs, or physics, people react to these themes with remarkable consistency.
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Morgan references economist Hyman Minsky's "Financial Instability Hypothesis," which suggests that prolonged stability breeds complacency—people become overly optimistic, accumulate excessive debt, and eventually trigger a downturn. He emphasizes that stability itself creates instability; too much calm pushes the system toward chaos.
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After every market crash or recession, people look for someone to blame. But Morgan argues these cycles are a normal part of how capitalism functions. Attempting to eliminate market cycles often makes them worse.
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While Morgan believes it’s nearly impossible for society or industries to break free from these cycles, he sees hope at the individual level. By recognizing these recurring patterns, individuals can avoid repeating mistakes in their own investing and decision-making.
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Morgan stresses that if an investment can rise fivefold in a year, it can also lose 80% of its value within the same timeframe. This is especially evident in crypto—some assets may increase tenfold in a year, yet plummet 80–90% on minor news, while some “shitcoins” could go entirely to zero.
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Many enter the crypto market mid-bull run, mistakenly believing the boom will last much longer. Soon after, they find themselves on the other side of the cycle—deep into a bear market—and experience its full pain. More than half eventually exit during this phase.
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Morgan observes that in financial matters, if you can complete the sentence “I am a ___ investor,” you’ve likely tied your identity to your investment approach. During bull markets, people may see themselves as smart or wealthy; in bear markets, that shifts to feeling like a failure or being poor. This tight link between identity and market performance can be emotionally damaging.
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Citing Harry Truman, Morgan notes that each generation learns little from the previous one unless through firsthand experience. In finance, if you’ve never lived through a 50% drawdown, you don’t truly understand it. Every bear market is unique—even if you've survived several, the next one might feel completely different.
The Psychological Impact of Exaggerated Returns
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Morgan points out that markets possess a collective memory shaped by participants’ shared consciousness. Different investors, based on age and personal experiences, react differently to the same events. Each generation interprets risk uniquely—those who came of age during the Great Depression tend to stay wary of financial markets for life, while those who were children then only heard stories from parents.
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He emphasizes that experiences between ages 15 and 30 have lifelong impacts. During this period, brains remain malleable, and individuals begin taking on societal responsibilities—shaping their worldview profoundly. Generational differences in financial perspectives stem largely from this formative window.
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In bull markets, people often feel dissatisfied with their own returns due to envy of others. This envy, Morgan argues, is a major driver behind runaway booms. On social media, users frequently exaggerate—or even fabricate—their successes, fueling unrealistic expectations and jealousy among peers.
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Due to social media, market cycles now move faster. In crypto, this effect is amplified—rallies and crashes can unfold extremely quickly.
Money, Happiness, and Personal Values
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During bull markets—especially in crypto—people often flaunt wealth, particularly on social media. This behavior, Morgan says, fosters envy rather than appreciation for one’s own progress.
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While money can bring a certain level of happiness, it only solves problems related to money. True well-being also depends on healthy relationships, mental health, and a fulfilling lifestyle.
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Successful people often schedule large blocks of unstructured free time. This apparent inefficiency actually creates space for creative thinking and problem-solving. In contrast, those who pack every minute tightly rarely leave room for innovation.
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Quoting music producer Rick Rubin, Morgan notes that many realize after achieving their dreams that they don’t feel any different inside—leading to despair. Money doesn’t fundamentally change how you feel. Many actually crave simple, independent lives but mistakenly chase status instead. Status is a game you can never win—someone will always be richer, prettier, or happier.
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Some may be billionaires on paper, yet carry even greater "social debt." This burden comes from craving others' approval and needing to prove one’s worth—an emotional weight Morgan describes as deeply taxing.
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Money can be used in two ways: as a tool to enhance personal happiness, or as a scoreboard for others to judge your success. Too many use it the latter way. Reducing dependence on external validation allows people to use money more effectively for genuine fulfillment.
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The hosts add that viewing money as a means to increase freedom represents the healthiest relationship with wealth. Chasing status is an exhausting, endless race; seeing money as a tool enables better living.
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Many consumer goods—like cars and homes—are misunderstood in value. For example, a high-end Toyota may actually offer more driving comfort than an entry-level BMW—it’s about utility, not just status signaling. Even fundamentally good people can make bad decisions under strong financial incentives.
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Financial incentives don’t just lead to negative behaviors—they can drive positive change too. For instance, wartime or economic crises accelerate technological innovation due to urgent needs.
Investment Strategy: Balancing Long-Term vs. Short-Term
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Morgan practices long-term dollar-cost averaging. Regardless of market highs or lows, he invests fixed amounts regularly into the same assets, planning to hold for 50 years. This minimizes emotional influence on investment behavior.
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Long-term investing doesn’t mean ignoring short-term dynamics. The long term is simply the accumulation of short-term periods. Investors must live through and understand these phases—even when market behavior seems irrational.
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In crypto, new phenomena like NFTs and emerging assets are integral parts of the narrative and evolution. Content creators and investors cannot ignore them. Morgan believes various strategies are valid—some may prefer regular investments in blue-chip stocks or crypto, while others enjoy trading and exploring new opportunities. Both approaches can be healthy.
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Many stock investors allocate the majority of their capital to long-term stable holdings, while reserving a small portion for active trading and experimental bets. This satisfies intellectual curiosity and adds enjoyment to investing.
Key to Happiness: Embracing Imperfection
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In investing, effort does not always correlate with outcomes. Many investors misunderstand what they can control, overestimating action and underestimating behavior. In both bull and bear markets, sometimes the best strategy is doing nothing.
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Striving for perfection—such as perfectly timing market tops and bottoms—is often unrealistic. Markets are inherently uncertain. Accepting imperfect decisions leads to more conservative strategies, like diversification, reducing the impact of single mistakes. Constant pursuit of efficiency can lead to devastating losses during crises.
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Accepting imperfection means adopting a long-term view. Over time, short-term volatility and flawed decisions matter less. It also prevents overreaction to market swings and builds psychological resilience—staying calm and objective despite losses or errors is crucial.
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Learning from mistakes is vital. Accepting imperfection helps extract lessons for better future decisions. It also implies adaptability—market conditions and personal circumstances change, requiring strategy adjustments rather than clinging to outdated "perfect" plans.
Compete Against Yourself
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Morgan emphasizes that sustaining both optimism and pessimism is key to long-term success in business, investing, and sports. First-time crypto cycle participants may lean fully into optimism, hoping to ride the wave from start to finish.
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Crypto investors might adopt a “barbell strategy”—not just balancing traditional assets (like cash or Treasuries) with crypto, but also including real estate or other hard assets. Such diversification provides a safety net during crypto downturns.
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Using Microsoft as an example, Morgan highlights a hallmark of successful entrepreneurs: extreme technological optimism paired with extreme financial conservatism. Bill Gates said he wanted enough cash in the bank from day one to cover a full year of payroll—even with zero revenue.
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Despite short-term challenges, persistence often leads to significant long-term progress. Morgan reflects on his own investing journey—though constantly facing issues, markets ultimately delivered substantial growth over decades.
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Applying these lessons across market cycles is essential. They’re especially valuable for first-timers. If rising income fuels equally rising expectations, satisfaction remains elusive. Even those blessed with growing wealth and income will never feel fulfilled unless they actively manage their desires.
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Morgan advocates gratitude and self-comparison. Don’t compare yourself to others today—compare yourself to who you were five years ago. Most have improved significantly, even if social media makes them feel otherwise.
The Power of Incentives
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Morgan stresses that incentives powerfully shape behavior. Understanding the incentives of individuals or organizations is critical to predicting their actions—whether in crypto or beyond.
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Short-term incentives may drive market movements, but long-term fundamentals determine true value. Market dynamics arise from diverse participant motivations—quick profits, loss avoidance, or patient capital allocation.
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Understanding incentives helps assess risk. For example, if short-term profit seekers dominate the market, volatility and instability increase.
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Morgan advises investors to reflect on their own incentives—financial goals, risk tolerance, time horizon—to build appropriate strategies. Someone prioritizing capital preservation should opt for conservative investments.
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Though markets may swing wildly in the short term due to incentives, long-term success usually favors disciplined, principle-based strategies grounded in deep understanding.
Manage Risk, Don’t Overoptimize
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Investors often try to over-optimize—like precisely timing market peaks and troughs. But such efforts are usually unnecessary and potentially harmful. Allowing room for error and imperfection is vital. In an uncertain world, chasing perfection leaves no margin for mistakes—dangerous during crises.
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A long-term perspective outweighs attempts to fine-tune short-term moves. Morgan advocates buy-and-hold investing over frequent trading or market timing. Avoid overreacting to short-term fluctuations—volatility is normal, and knee-jerk reactions lead to costly trades.
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Simplifying investment decisions reduces errors and stress. For example, consistent dollar-cost averaging eliminates pressure to time entries or exits. Cultivate patience and resilience to withstand uncertainty and turbulence.
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Success in investing takes time. Frequent trading typically incurs higher costs and lowers overall returns. Stay consistent with your strategy and resist tweaking your portfolio due to short-term noise.
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Understanding basic economics, market mechanics, and financial instruments empowers smarter decisions. Focus on long-term goals and the big picture. Adjust strategies when needed as markets and personal situations evolve. Recognize natural market cycles to position your strategy wisely.
Optimism and Pessimism
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Long-term investing success requires balancing optimism and pessimism. Optimists believe in long-term gains; pessimists prepare for short-term setbacks. Morgan advises: be frugal like a pessimist, invest like an optimist.
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One asset allocation strategy Morgan likes is the "barbell approach"—holding highly liquid, low-debt assets on one end (a pessimistic short-term stance), and long-term equity investments on the other (an optimistic long-term outlook). Challenges may come, but enduring them often yields massive long-term rewards. So, stay cautious in the short run, optimistic in the long run.
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Balancing optimism and pessimism is crucial. Excessive optimism ignores risks; excessive pessimism causes missed opportunities. Optimism drives investment and innovation—seeing long-term potential is invaluable.
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Pessimism also has value—it acts as a risk management tool, helping spot hidden dangers and prompting prudent decisions. History’s greatest advances were driven by optimists, tempered by the warnings of pessimists.
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Market cycles influence emotional bias. Bull markets breed optimism; bear markets amplify pessimism. Investors should recognize their own tendencies—understanding your emotional leanings helps craft a balanced, personalized strategy.
Good Things Happen Slowly, Bad Things Happen Fast
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Positive outcomes usually stem fromcompounding, which is inherently slow. In contrast, damage often results from single points of failure—each capable of causing immediate, catastrophic consequences.
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Strong investment returns take time to build. Market crashes or crises, however, can occur in moments. Investors must accept that wealth creation is gradual—not something to rush or expect overnight.
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Because disasters strike quickly, investors need risk mitigation strategies—like diversification or maintaining cash reserves. Psychology plays a key role: panic triggers rapid selling, leading to sharp price drops. Learn from history—understand market cycles and volatility.
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No matter how experienced, investors should remain humble and open to new information. Markets are complex and unpredictable—there’s always more to learn. Investment decisions are made with incomplete data; embracing uncertainty is central to long-term success.
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