The Mental Model Used By Crypto Billionaires For Profitable Long-Term Decision-Making
Business tycoons, high-level poker players, and crypto billionaires all share one successful trait; they make decisions like a professional.
It’s necessary when facing difficult choices in high-pressure environments.
Unlike “amateurs,” high-performing individuals tend to follow a unique mental model for high ROI decisions long-term.
It’s the concept of Expected Value (EV).
This way of thinking applies to financial investing, crypto, or any major decision to get the most favorable outcome in life.
What is Expected Value?
Our life decisions often come with uncertainty and various possibilities. We rarely have the information to make a 100% sure “bet,” as there are many complicated, unknown factors at play.
Expected value is the weighted average of all the possible outcomes in a scenario. And then making the best-educated decision based on the information we have.
A poker player’s job is to estimate his winning chances. He looks at his cards. But he also calculates the mathematical likelihood of what the other players have. He then decides to either check or fold.
An investor can research companies, analyze financial statements, or use an informational edge for the most profitable stock investments.
You can apply this concept yourself to decide whether you should stay at your job or launch a business, pay your parking ticket, or cheat on your diet.
Expected value is deciding the most favorable outcome long-term if the same event is repeated several times.
Thinking this way might feel unnatural at first. But it helps you objectively make good decisions when facing unknown consequences.
How To Calculate The Expected Value In Almost Scenario
The formula to calculate the expected value is by multiplying the probability of an event happening by how many times it occurs.
Here’s how it looks like:
EV = (P(x) * n)
Where:
- EV = Expected value
- P(x) = The probability of a certain outcome happening
- n = The number of times the event will occur
The Important Concept of +EV and -EV
The expected value can be positive (+EV), negative (-EV), or neutral.
As you can guess, you want all decisions in life to +EV because it gives you the most favorable outcome long-term.
Let’s take a famous coin flip example to better understand this concept.
Assume the coin is fair (i.e. it isn’t weighted).
If you win $2 every time the coin lands on heads, and you lose $1 every time its tails, then it’s a +EV decision to play. Because the “winnings” outweigh the potential loss. The odds are in your favor.
If you win only $1 every time the coin lands on heads, and you lose $2 every time its tails, then it’s a -EV decision to play. Because the “loss” is greater than the potential winnings. The odds are stacked against you.
If you’d win $1 every time the coin lands on heads, and you lose $1 every time its tails, then it’s a neutral EV decision to play. The probability of winning and losing is the same.
However, there is one crucial factor to this that could make or break your long-term decision-making, as you’ll see in the rest of this article.
The more familiar you get with the concepts +EV and -EV, the more you will notice how it applies to nearly everything in life. Let’s look at some examples.
Making Crucial Decisions With +EV and -EV
Hitting the slot machines in Las Vegas can be fun. But the odds are stacked against you. Even if you play a game with a 50/50 chance of winning, the casino charges a fee, ruining the neutrality of the game (which is why “the house always wins”). You’re expected to lose long-term. Gambling at the casino is therefore a -EV decision.
Lottery tickets work in a similar way where the odds are heavily stacked against you. That’s why most people can buy Powerball tickets for a lifetime and never win. Playing the lottery is therefore a -EV decision.
Let’s say you invest in the stock market. You might lose money during a recession, which is why the stock market seemed like a horrible bet in 2008. But if you look at the bigger picture, and you make sound investments, you’ll profit over time because the market is generally in an upward trend. This is the cornerstone of expected value decision-making.
You can always argue investing in penny stocks is a negative EV decision. But if you look at the last +50 years, it would be beneficial to have a stock portfolio. Sound investments in the stock market is therefore a +EV decision.
It applies to all financial investments — even crypto. The EV concept remains even if most people deem cryptocurrency as “risky.”
But you can still decide the best calculated “bet” with the information you have.
If you continually make +EV decisions, which can be tricky, you will be rewarded with the most favorable outcome long-term. As it’s been proven by famous mathematicians and the laws of probability theory.
Let’s look at how this applies in the crypto world. This is how you can use +EV and -EV to get the most favorable outcome long-term (i.e. profit from your cryptocurrency investments).
How To Win In Crypto With Expected Value
Most people are intimidated by crypto because they feel it’s risky. But objectively, it’s no different than any other financial investment.
The +EV and -EV rules remain. Your job is to decide the best calculated decision with the information you have.
Let’s take buying Bitcoin as an example.
The most popular cryptocurrency has been in an upwards trend since its launch in 2009. There’s a cap on how many Bitcoins can be “printed”, without sky-high inflation risk. There’s value in blockchain technology as you can send transactions worth billions in a split second (compared to a bank taking weeks).
You could argue Bitcoin will crash to zero because it’s just a fad. But betting on a groundbreaking technology (like the blockchain) once per century is most likely a good decision. Buying Bitcoin is therefore a long-term +EV decision.
Compare this to shilling shit coins hoping they “go to the moon,” when in reality, most are complete vaporware and will likely go to zero (see 2017 ICO era).
People think they have “enough information” to take a position on Dogecoin because they saw a random Twitter post.
But you never know who’s behind the tweet, their knowledge, or if they’re part of a pump and dump scam. Besides, it gives you no informational edge because as soon as you read it on Twitter, it’s usually too late.
Thus, investment advice from randoms on Twitter is an -EV investment strategy.
Some people prefer to buy Bitcoin and hodl. But that’s the equivalent of driving with the training wheels in the crypto world.
With all the exponential growth, there are many interesting projects to get involved in other than just hodling.
One of them being DeFi and Yield Farming, a new groundbreaking space in the world of crypto.
How To Profit In DeFi And Yield Farming With Calculated Decisions
Yield farming is still brand new as it remains unknown to the average person (congrats on reading this article!). But even savvy crypto investors can have a difficult time navigating through this territory.
DeFi is an ever-growing space in the crypto world. Many see it as a revolution to the traditional financial system, as normal people can now act as banks.
Since there’s demand, there are opportunities to profit. Crypto allows anyone to marginally beat almost any traditional financial instrument like the S&P 500. But it requires +EV decisions without degenerate, non-calculated “bets.”
Many investments in crypto and yield farming can be +EV or -EV. Just one good decision is obviously never a profit guarantee. But sometimes there are more +EV options out there.
Your job is to uncover what is the most +EV option given all the information you have.
For example, making market-neutral bets without exposure to volatility is a +EV decision.
One of those strategies can be stablecoin farming.
Stablecoins are cryptocurrency assets pegged to an underlying asset (most commonly the US dollar). They typically avoid the crazy volatility like most cryptocurrencies.
They rarely go above $1. They rarely go below $1. They might fluctuate by a few pennies but remain at $1 in general.
Let’s take GUSD as an example.
Gemini dollar (GUSD), is a stablecoin cryptocurrency issued by Gemini, one of the United State’s largest cryptocurrency exchanges.
By analyzing its historical performance, you can see how well it has remained its stable “peg” against the US dollar over time.
How does this relate to good EV decisions?
Well, blindly investing in an asset because the price has been stable can still be a -EV decision.
But if you analyze how some stablecoins are issued and maintained by certain trust funds, whether they are audited, and you’ve researched safe platforms to deposit them into and earn 20–500% yields then you’re gathering information to make good investment decisions.
Calculated “bets,” where you never put yourself at risk of ruin (losing all your money), can be a better investment than a safe index fund. But most people never analyze through the lens of expected value. They invest emotionally based on what they read on the news or from a random Twitter account.
Yield farming with stablecoins isn’t completely risk-free (no investment truly is).
But the potential earnings (20–500% returns) compared to the low risk you take on (investing in market-neutral assets) will always make it a +EV decision by nature.
This is NOT financial advice nor an endorsement for stablecoin yield farming.
It’s an explanation of how the most successful investors and crypto whales consistently make high ROI decisions long-term.
They utilize one crucial aspect the retail investor is ignorant of.
A Vital Conclusion The Average Investor Don’t Realize
Remember how the odds of getting heads/tails in a coin flip game is 50/50, as mentioned earlier?
Well, sometimes flipping a coin can result in heads occurring 10 times in a row (thus, we’d lose money in the short term).
But if you flipped the same coin 1 million times it would result in heads/tails somewhere around 50% of the time. This is called statistical variance and it’s crucial to understand because it consistently rears its ugly head throughout life.
Sometimes you make the theoretically correct decision, and you still lose. That’s life. There’s always a chance of something going wrong.
That’s why you can’t go “all in” in an investment. It’s crucial to utilize bankroll management (risk-adjusted capital management) to ensure you never face the risk of ruin.
The point is, some +EV decisions can go south. It’s never a profit guarantee. But you will profit over time if you continually gather enough information and decide the best long-term “bet” with +EV decisions — as the expected value theory confirms.
It’s a great way to make both financial and life decisions in general.
-Yieldfarming.com