THE WINNER'S CURSE

[Bitco55]

This is a very rare theory almost no one talks about. It explains how people can win something and still be worse off than before. When a person overpays for an asset, opportunity, or deal just cause they were the most aggressive bidder, the market punishes them later.

We can almost see this happening all the time in the crypto world. A coin starts pumping & people rush in. The price keep rising because everyone is afraid of missing out, then someone buys at the very top just because emotions are now driving decisions. Theoretically speaking, that person win's the trade execution but he also loses financially because he overestimated the value of the coin.

The things is, most times, the victim don't realize this until months or years later. This theory explains how hype is often not real victory or profits.

[KiaKia]

I don't consider this to be curse related, do you even know the meaning of curse?

I have taken pictures of my portfolio at a very high price and few months later it turn to dust, this is not a curse by my own mistake based on my target, I expected more, would be better off calling it greed rather than curse.

I learnt from it, that in crypto space every profit is a profit, just because your target isn't reached you can't change that into loss, a profit is a profit, all you need to do is secure the profit.

Many people have made this financial mistakes and they have learned from it, many beginners will also make the same mistake and they will learn from it.

Taking pictures of your gains is not victory. The real victory is taking profit.

[abhiseshakana]

Not everyone who enters at a high price is making a mistake. The current problem is that many people misread the adoption curve. Don't forget that technology-based assets and their value networks are non-linear. Valuations are based on future optionality, not current cash flow. Prices often outpace fundamentals, not the other way around. Take Amazon, which has been considered overvalued for over a decade, for example.

In investing, ignoring momentum is as dangerous as chasing hype endlessly. Uptrends often last longer than rational expectations. People who buy when prices rise aren't necessarily FOMO; they could be astutely reading changes in market regimes, liquidity, or institutional adoption. In long-term investing, time in the market often trumps market timing; buying at the top of a small cycle can become the bottom of a large cycle. So, the key issue isn't the entry price, but the time horizon. For example, buying BTC at the top in 2017 lost for 2-3 years, but winning big in 2021.

Winner's Curse is more relevant in mature markets (closed auction markets, assets with stable/mature valuations, zero-sum competition), while crypto is still in the price discovery phase, with massive adoption, ongoing value creation, and an open market).

Not all hype is bad; hype often appears at the beginning of change, when the narrative begins to be heard and enters the mainstream, and before full institutional adoption. Be sure to enter during the initial hype and exit at the peak of the hype. So the problem isn't buying high, but buying without understanding what you're buying and how long you'll hold it.

The winner's curse is often found in the behavior of gambling winners. The winner's curse arises when an early win creates the illusion of skill, when the outcome is purely probabilistic. Winners, believing their strategy is correct, become more confident, increase their bets, and continue playing longer, even though the expected value of gambling is almost always negative; the longer they play, the greater the chance of losing. Early wins are a curse because they prolong participation in a detrimental system, encourage greater risk, and delay the realization that The game is unprofitable. The above also parallels the Winner's Curse in the Market. As in gambling, the winner is not the smartest, but the most aggressive. Prices or bets rise because of emotion, not value; "winning" does not reflect true value. In both gambling and speculative investing, winning early can be the most costly mistake.

The Winner's Curse explains the paradox that a momentary win can be the beginning of a long-term loss. Winning creates bias, not proof of superiority.

[barbara44]

We call that FOMO (Fear of Missing Out) in the crypto world, and it's something that one should always refrain from because your losses will be guaranteed, unless you are doing it with a coin that is eventually going to recover its price, like Bitcoin, and then you will have your money back, but with most altcoins, and especially coins that run through hype, are going to make you lose money because when you buy at the top, and become exit liquidity for early investors, the coin or token drops in value, and then doesn't go up because major investors have already taken their profits and abandoned the coin.

Newbies mostly go through this phenomenon, I have faced this myself when I was new in the market, because I didn't have enough knowledge, so I used to buy cryptocurrencies that used to have a large green candle in the chart, and I used to think everyone buying this are making profits, so I should do it too, but that was a wrong mindset and it was because of a lack of knowledge, and I now when I know everything, I regret doing that but there is no point anymore.

[Majestic-milf]

 FOMO is what makes people take hasty decisions that can prove costly. I still maintain that as humans, we are easily moved and excited when more than one person is bidding for an item because then it would mean that the item has value but this behavior often causes losses and in a situation where losses are incurred, people begin to look for who to blame or begin to regard crypto as a waste of time, failing to place the blame on themselves because of their rash decision making.

[AVE5]

We can almost see this happening all the time in the crypto world. A coin starts pumping & people rush in. The price keep rising because everyone is afraid of missing out, then someone buys at the very top just because emotions are now driving decisions. Theoretically speaking, that person win's the trade execution but he also loses financially because he overestimated the value of the coin.

The things is, most times, the victim don't realize this until months or years later. This theory explains how hype is often not real victory or profits.

I'm probably the only one who doesn't okay this phrase "that person win's the trade execution but he also loses financially" because there hadn't been a lost count according to the theory.
Unless the top he buys turns a support level and then he had to exit at a resistance. But if he had to hold in the long term after buying the top, how does he lost?
So what if he's just a position trader who could hold patiently while tracking the market to pump before he sells and doesn't worry about the resistance after buying the top out of Fomo with the coins hype, is he still going to lost?
The risks will be more found if the person is a either a day or swing trader whose mindset was to exit at the very short time and I'm sure most traders buying at the top tends to exit shortly but you didn't state the category of the trader based on the theory Op.

My conclusion is that investing on hype coins is very risky and you'd surely be overwhelmed when you buys over hypes.

[Findingnemo]

Buying could be considered as when if it's physical item because you eill have something to hold onto or atleast can convince yourself but with crypto what is the point, it doesn't exist physically so you can't even consider you own that and even if you do then it is just a dead project that is worth nothing at all.

[DPHOR]

Let me use Bitcoin for instance; currently the market is at 90k plus and there were people who already ventured into the market around 126k with the hope of the market crossing 126k to 160k, but it quite on fortunately that the market didn't go as they planned whereby it now reversed to from 126k to 90k does it mean that they are already being punished or are facing their curse rushing to the market?
To me it's simply No because, as we know the market is not stable and is always appreciative and can increased at any given time whereby it would create another ATH even above what they had gotten their coin at the first place and that range could be a good entry points where those who didn't enter the market then could start regretting of not entering the market earlier than that. So, to me I do not see it as a curse.

[Oluwa-btc]

The things is, most times, the victim don't realize this until months or years later. This theory explains how hype is often not real victory or profits.

For me I don't regard this scenario as a winners curse or whatever it may seem like, I believe its just misinterpretion of the markets at that moment duly sponsored by wrong decisions by the trader or investor and when it happens that there's a loss alongside it doesn't mean you're under a curse or something it means you're having doubt as well as fear of missing out which has turned out to be a financial mistakes but then not a curse.

[crwth]

I guess it depends on the context, like for bidding, you could really get that "curse" that you call it in a way that you would lose more with it and not be able to be better with your actual investments. There's not much to actually quantify the real reason it happens, but I look at it from a behavioral standpoint. Like how someone could be overconfident in something and then end up doing poorer.

I want it to be clear that overpaying doesn't mean you are cursed lol.

[criptoevangelista]

This is very common in the market in general, not only in the financial market. We saw it in practice during the pandemic with hand sanitizer, masks, and even toilet paper. It is a FUD phenomenon, or what is also known as herd behavior. It is human irrationality acting in its purest form.

[stompix]

So, where do you get cursed like this and what do you have to do?
Burn some holy book, dance naked in front of a church, make some graffiti on some ancient pyramid?
Asking for a friend, of course not for myself!

No way I am thinking of triggering a curse that would make me win a ton of money because there is a chance of me losing it, damn curse!!!!

It explains how people can win something and still be worse off than before.
~
The price keep rising because everyone is afraid of missing out, then someone buys at the very top just because emotions are now driving decisions. Theoretically speaking, that person win's the trade execution but he also loses financially because he overestimated the value of the coin.

This shit makes no sense at all!
Also, I don't really think you know how trading works but for sure you're in a rush to show us how shitposting works.

[Porfirii]

I have just merited the OP after reading some comments above, knowing that it can be unpopular, but I don't mind.

First, when the OP says "curse" I don't think he is talking about anything religious or mystical, but it's just a way of speaking. I'm not sure in other languages, but in Spanish, my mother tongue, the expression it is very common, and I would say that the figurative use in English is common too.

In addition, I don't think that post is shitposting. He is talking about that common situation when someone wins because of luck even though he was reckless. He missed the chance to learn that recklessness will make you lose in the long run. That's their "curse": they're doomed to failure, which in other words is just the expectable regression to the mean.

[stompix]

In addition, I don't think that post is shitposting.

Yes, it is, prime grade first class shitposting from a guy who doesn't have a clue what he is talking about, speaking of things like winning a trade, lol, and then going through a dysentery of words to make his post look longer and hopefully deceive enough someone so he could get some merits and shitpost for real money!
Well, guess he won! I do appreciate the irony that is!

[Mallampue]

This is a very rare theory almost no one talks about. It explains how people can win something and still be worse off than before. When a person overpays for an asset, opportunity, or deal just cause they were the most aggressive bidder, the market punishes them later.

We can almost see this happening all the time in the crypto world. A coin starts pumping & people rush in. The price keep rising because everyone is afraid of missing out, then someone buys at the very top just because emotions are now driving decisions. Theoretically speaking, that person win's the trade execution but he also loses financially because he overestimated the value of the coin.

The things is, most times, the victim don't realize this until months or years later. This theory explains how hype is often not real victory or profits.

I would understand it better if this was titled FOMO is a curse, it makes more sense if in the case study it is like that, what is the mascud of the winner here? by simply making a decision to invest or trade that makes him lose, there is absolutely no suitable word in that case, even losers can do it, ohh no, I better say it's the curse of the loser because of his ignorance that FOMO will make him lose, lazy to learn, can't control himself.

[Josefjix]

Some comments are viewing it in the perspective of crypto space, I could derive the post towards another perspective in the reality of life.

In my country, everyone chases the trending jobs that circulate round the corners, those that actually put their commitment into it is crying to leave because the hype is coming to an end, it's becoming harder to get a job now, why those that stayed away from it is pretty doing fine in their endeavors.

The point is this, boring activities and jobs eventually ends in joy while following hype just seems like chasing wind and catches crumbs over time. It's the hard truth that hurts.

[Rruchi man]

... because emotions are now driving decisions.

Another effect of decisions laced with a lot of emotions, they are rarely profit yielding.  Emotions require you to become the master of them. You have to be aware of it because some emotions will creep up on you without obvious announcements.

If you are conscious of your emotions, being able to distinguish when you are making a decision with emotions, you have conquered a lot and will be able to make better decisions.

[Bialke]

Let us built a bridge for the OP!

A "winner's curse" could be the "Average Joe", who is trained on long trading. For him it is a secret that you can trade the market upside down / short.

But further a "winner's curse" also could be, that an "Over-average Joe" is thinking he is the art of the deal, because he can trade the market "normal" and "upside down". But he is missing the point, that his oracle is not sending all data to tell the price. That he is blind to the outer market trades - like OTC trades. And that he is blind to the fact, that the good he traded has not to be traded to be traded - Like BTC is not moved on the chain and the "volume of his market" is not moving, but they are trading 10 keys of a locked treasury box (a wallet) with 1 BTC inside with high volume. And first it is 0,1 BTC, but then... After fork,after fork...It is 0,1 BTC + fork share + fork share...

[Kiddo15]

This is a very rare theory almost no one talks about. It explains how people can win something and still be worse off than before. When a person overpays for an asset, opportunity, or deal just cause they were the most aggressive bidder, the market punishes them later.

We can almost see this happening all the time in the crypto world. A coin starts pumping & people rush in. The price keep rising because everyone is afraid of missing out, then someone buys at the very top just because emotions are now driving decisions. Theoretically speaking, that person win's the trade execution but he also loses financially because he overestimated the value of the coin.

The things is, most times, the victim don't realize this until months or years later. This theory explains how hype is often not real victory or profits.

There is nothing really wrong with buying at the top, maybe that was the point the person came to be aware of that coin, and if the market didn't reverse and it has had a slow and steady growth, then I don't see the reason to say the person lost financial value. Your point can be More understanding if within a period of time the market drop significantly and it refuses to bounce back, then at that point, the buyer will regret their actions, but if nothing of such then the theory is not a true reflection of events, because in some cases people aggressively buy and still make huge profit from it.

[Sticky Bomb]

This is very common in the market in general, not only in the financial market. We saw it in practice during the pandemic with hand sanitizer, masks, and even toilet paper. It is a FUD phenomenon, or what is also known as herd behavior. It is human irrationality acting in its purest form.

I believe this scenario tends to play out very well when there is an unhealthy hype around a product due to some temporary situational development. I could remember during COVID period, my friends and I wanted to use the rising demand for face masks to cash out, producing reusable face masks and trying to sell them, but when we were done, the hype around it had already died down and people could do without it in my country and starting to move freely. We ended up slashing prices and struggling to even recover our capital.

Secondly, these works perfectly in altcoins and shitcoins since influencers and project owners would hype the products and create artificial pumping of these projects to create FOMO, attracting investors to jump in, only for them to recognize they have been robbed after a while when the project is rugged. Such a thing is not to be found in bitcoin, buying the top is not a challenge since the prices have always recovered and broken new highs, making those previous tops the new dips which investors pray the price crashes to so the make purchases.