Lizard brains, dopamine, and cryptocurrencies

Cryptocurrencies replay history

Bitcoin prices have declined by over 80% in under a year. Furthermore, Bitcoin has had one of the smallest declines of any crypto currency.  

If you had $1,000,000 invested in Bitcoin cash at the top, you would now have a little over $20,000. 

Crypto currencies provide an interesting look at how our brains work in financial markets. 

CoinAll-time HighDec 10, 2018% declinedate of high
Bitcoin$20,089.00$3,368.38-83.23%Dec 17, 2017
Bitcoin cash$4,355.62$99.62-97.71%Dec 20, 2017
Ethereum$1,432.88$88.36-93.83%Jan 13, 2018
Litecoin$375.29$23.86-93.64%Dec 19, 2018

At the absolute top in Bitcoin, at a price of just over $20,000, Chicken Little was long, Chicken Little was wrong, and Chicken Little was bullish. 

Being long, wrong, and confident is the hallmark of a market high. At this point, the investor's brain is filled with pleasure-creating dopamine. Our brains are built to have us repeat behaviors make us feel good. Food, Sex, and Money all produce dopamine, and we are built to want to repeat whatever leads to dopamine.  

Wining produces dopamine

Financial market are different than other parts of our lives. In most parts of our lives, the behaviors that work today are the same as the ones that will work tomorrow. In financial markets, this brain circuitry gets us in trouble because the best investments become the worst, and vice versa. 

What can we do about our Lizard Brains? What we can't do is stop the release of dopamine when we make money. 

What we can try to do is outsmart our brain. In the case of Crypto, Chicken Little was able to recognize and exit and make a few dollars. 

Chicken Little Crypto purchase 1: entry, exit
Chicken Little Crypto purchase 2: entry, exit

Ethereum: $0 -> $1500 -> $80 -> $? 

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