Reflection after the Crash: Perfecting the Mindset of "Viewing Pullbacks"

Investment firm QED Investors co-founder Frank Rotman released a tweet during the market downturn, urging investors to have a coin-centric mindset rather than always panicking. Below is a summary:

Original tweet link: https://twitter.com/fintechjunkie/status/1484958205306413058

In the past few days, both the U.S. stock market and cryptocurrencies have been falling. Some are shouting to buy the dip, while others predict the beginning of a crypto winter. My personal framework for "viewing corrections" is as follows:

Advertisement - Please scroll down for more content

Interpreting Market Corrections

A market crash can be painful, with fear dominating investors' thoughts. However, in times of uncertainty, having a sound framework of thought can serve as a guiding light, helping investors navigate through turbulent waters. The correct psychological model includes two important concepts:

• Ownership Stability
• Situational Perspective

Ownership Stability

It took me a long time to understand that 1 BTC = 1 BTC and 1 ETH = 1 ETH. The primary principle here is that the absolute ownership of an asset remains unchanged, but the value of the asset fluctuates due to market sentiments.

No one can take away what you've purchased; you own it. If you buy 10 shares of a company's stock, no one can take them away from you. Even when the market corrects, you still hold those 10 shares, and nothing changes.

However, when the market corrects, everyone tends to panic because, hypothetically, if you decide to convert your assets into fiat currency, it means your assets are being evaluated every minute. People are very concerned about this interpretation because fiat currency is commonly used as a value store for daily transactions. If you need to buy a car or a house, eventually, you'll need to convert back to fiat currency.

Enthusiastic supporters may argue that certain tokens are becoming socially acceptable alternative value stores, but this discussion is set aside for now.

If you're not looking to sell at the moment, then the exchange rate between your assets and fiat currency is not important. What matters is the quality of the asset and, more importantly, at what potential price point you would cash it out, and contextualize this idea.

Situational Perspective

Excellent companies offer popular products and services, operated by teams that understand how to increase revenue and create competitiveness, but none of this happens overnight. Value creation takes time, and the same applies to other assets; building consensus and adoption requires effort and time.

In the long term, the market does a great job of defining asset values, but during periods of high volatility and oscillation, the market performs poorly.

The key is to contextualize the situational perspective. Once the market stabilizes and enters the next phase, investors will correctly redefine asset values. Another concept that needs contextualization is that liquid assets have pros and cons and are not always superior to illiquid assets.

The value of liquid assets fluctuates second by second, greatly affecting the mindset of the holder. Those affected also include individuals dedicated to making assets more valuable.

How Can Contextualization Improve Mindset?

Crypto projects, DAOs, and other practitioners also hold their own tokens/equity. If they can only sustain themselves by cashing out tokens, it is very risky; even if they "hold on," they will feel discouraged by token collapses, subsequently affecting productivity.

Therefore, projects will seek VC financing to allow employees to focus on creating value rather than the "value of today."

The framework of ownership stability and situational perspective can help you understand what to do during market turbulence. This is my personal guide, which I believe contributes to maintaining calmness.

Operational Suggestions

Liquid Assets

Reevaluate holdings during periods of volatility. This is the time to look for assets with relative undervaluation that can yield good returns. Asset rebalancing and reconsidering different assets would be a good practice.

Injecting New Funds

If you have the funds, the bottom is the opportunity to buy selected assets at a cheap price. Buying at $100 is better than $120!

Cryptocurrency Case

Assuming the value of ETH in a high-quality NFT project remains unchanged, buying Ether at this point to purchase more NFTs would be a good trade.

For VCs, corrections in the public market could also affect the private market, leading to some "value trades." Their "bullets" are also crucial, and if the market continues to decline, raising new funds could become more challenging.

What I want to emphasize is: Don't panic. The above are excellent broad suggestions, yet they are also challenging to execute. Long-term thinking can solve many things. If you can master it, it becomes a life skill, transforming "you own your assets" into your mindset and taking corresponding actions.