Bitcoin captures the minds of different thinkers from all around the globe. However, those who tend to have a more immediate understanding of bitcoin likely also hold similar values that led them to appreciate the benefit of bitcoin in the first place.
That mental discrepancy comes from high time-preference and low time-preference thinking, and it could be one of many reasons why bitcoin is more difficult for some to understand than others.
Though these mental models aren’t inherent to bitcoin, thinking about money certainly ties both frameworks into the equation.
What Is Time Preference?
Let’s first start with the basics: what even is time preference anyway?
Put simply, time preference is a measurement of the degree to which someone favors their immediate well-being versus their future well-being. If you’re more inclined to tend to your immediate needs, you may have a high time preference, whereas if you are more inclined to delay gratification to prioritize the future, you think with a low time preference.
High time preference thinkers are more focused on the short term, and thus spend most of their mental energy on satisfying their present needs while putting off longer-term needs. Giving preference to your immediate well-being is only natural; the future is uncertain after all, and we have survival needs to tend to on a daily basis.
On the other hand, a low time preference is the opposite: focused on the long term. With a low time-preference mindset, you can free up more mental energy that’s typically spent on short-term thinking with things that matters more to you.
With proper systems in place, finding the right balance between a healthy present self and a prepared future self can optimize your path to success. If you find yourself leaning too heavily to either side, keep reading to learn what you can do to stay balanced.
How Does Bitcoin Promote A Low Time Preference?
Bitcoin, unlike altcoins, tends to attract lower time-preference thinkers because of the foundational, security-focused measures built in place to ensure bitcoin’s integrity.
Satoshi Nakamoto purposefully engineered friction and difficulty into bitcoin’s supply distribution, via mining, so that it cannot be easily reproduced or manipulated. Counterintuitively, the act of channeling energy into securing a strong financial system reduces the energy needed elsewhere to operate financial services working against exponential fiat or altcoin currency debasement.
Bitcoin is all about growing and extending our purchasing power over time, as opposed to how fiat currency diminishes purchasing power the longer you hold onto it.
For the high time-preference thinker, fiat currencies’ ever-diluting supply isn’t as much of an issue, as they’re more likely to consume (spend) with that money in the short term. However, as a bitcoiner focused on preserving purchasing power, it’s only natural to develop a longer time preference as you come close to terms with the nature of how money interplays with our wealth over time.
However, just because you’re a bitcoiner certainly does not mean you’ve mastered the low time-preference mindset.
Bitcoiners With A High Time Preference
Now, high time-preference thinking can manifest in a myriad of ways, but in the context of bitcoin, you might find high time-preference thinkers:
- Selling out and buying in hastily in expectation of quick returns on Bitcoin trades.
- Taking unnecessary risk by trading bitcoin too often, adding leverage, lending out bitcoin with “trusted” third parties in hopes of additional yield, etc.
- Succumbing to FOMO by overweighting the importance of short-term volatility and making rash decisions.
- Focusing on the short term and what bitcoin can do or buy for you now rather than thinking about what it can do for you and your long-term future.
Bitcoiners With A Low Time Preference
On the other hand, lengthening your time preference in alignment with bitcoin’s tendency to appreciate over time can reap great returns for both your present and your future. Low-time preference bitcoiners are more likely to:
- Hold bitcoin more comfortably without having to spend any mental energy on the short-term price movements.
- Stay disciplined and make consistent, thought-out, and wise decisions regarding your financial future.
- Take risk responsibly in ways that can advance your life forward with minimal downside, in case things don’t work out.
- Focus on the long term and what bitcoin can do for you down the road, not what it can get for you in the present moment.
Dangers Of A High Time Preference
If not managed properly, a high time preference can quite literally ruin you or other people’s lives financially, emotionally, spiritually, etc. – if you allow it to.
Time and time again, the cryptocurrency space demonstrates this to be the case:
- Big time investors like Mark Cuban lose $900,000 to crypto hackers
- FTX creditors watched more than $3 billion in funds disappear right before their eyes
- Terra Luna’s Do Kwon convinced thousands of people to flee to “safety” into a 20% APY stablecoin that depegged, costing innocent people billions of dollars.
Obviously, a high time preference doesn’t have to be taken this far, and most people don’t go this far themselves, but there are plenty of individual ways in which people can spin off into dangerous high time-preference thinking.
Taking trading risks too far can result in huge losses of funds, and the emotional and mental toll that they can cause isn’t worth the time it loses. Spending more than you produce is a quick road to failure as it actively digs the hole you need to climb out of deeper. Only tending to your immediate self sets you behind more than if you have the due diligence to build a proper foundation for yourself to build on.
What’s even worse is that fiat currencies naturally facilitate and foster a high time-preference relationship with money.
Given the fact that society lives with money that declines in purchasing power over time, people are inherently incentivized to spend it as soon as they can in order to capture as much of that present-day purchasing power as possible. People are forced to speculate with their money and invest it into random baskets of financial instruments that claim to outrun the effects of inflation over time.
This is the default mode of living: high time preference, as it’s embedded into the tool we use to interact and exchange with others on a daily basis. And consistently, it can lead to bad outcomes.
Ultimately, a high time preference keeps you distracted from what’s (ironically) actually important to your immediate well-being.
Instead, bitcoin is all about simplifying and optimizing for longevity. Just study, buy, hold, and live your life. There’s no need for intermediary friction, no need to get caught up in unnecessary leverage, no need to take on unnecessary debt, no need to focus on growing your wealth as quickly as possible. Just sit on it (don’t forget to spend a little too!), and wait; It’s proven time and time again to be the winning strategy, and it emphasizes just how simple finance can truly be on a Bitcoin standard.
Why Should You Lower Your Time Preference?
If it hasn’t been made clear, a low time preference is far more likely to set you up for long-term success than a high time preference.
Since you optimize for the future, your immediate desires don’t hold you back from getting there more slowly, and instead give you the mental freedom to reach and surpass those goals faster than you would have otherwise.
- Instead of trading for short-term gains, you can spend time learning for outsized returns in the future.
- Wealth accumulation becomes easier as you consume less in the short term.
- Long-term goals become more feasible and achievable with these systems in place, allowing for you to focus more on what you truly enjoy.
- You set yourself up for better health and longevity by prioritizing discipline and exercise over sweets and luxuries.
By lowering your time preference and holding bitcoin, you’re in a better position to reach your goals, surpass them, and dream up bigger and better ones. You’ll accumulate more flexibility to live life on your own terms over time; whereas the opposite occurs when you consistently dwindle your resources.
Optimizing For Both
Obviously, anything can be dangerous if not kept in moderation.
Staying too oriented to the future can keep you from enjoying the present moments you have and having an appreciation for what’s available to you now, since you constantly live in a state of anticipation instead of contentment.
Instead, you want to maintain a healthy balance being present in your immediate life, but also aware enough to recognize where you fall in the timeline of the world around you. And having that high awareness of where you are in time is what makes things like bitcoin a real opportunity.
You can extend your time preference to better appreciate the value in what bitcoin offers over the long term, but act now in the present to realize that value over time. With that initial plan set into motion, you then have more freedom to rest easier and enjoy more high time-preference rewards in the meantime.
You can be present, happy, focused on the needs of your immediate self and those around you, and positioned for the future, all simultaneously – you don’t just have to pick one.
Final Thoughts
Having a strong understanding of yourself, and knowing how you lean – between high time preference and low time preference – can give you the tools you need to create an actionable strategy to optimize for both.
If you want, you can treat your time preference like you would a budget. Take some time to write down the various financial factors of your life; beyond just your essential and non-essential expenses – keep in mind your short-term and long-term goals as well. Challenge yourself to strictly categorize them as either low or high time preference. Like a budget, opening up this mental organization may highlight what aspects of your life need the most attention, and what you’re already on top of.
With this framework, you’ll be better suited to navigate your own life, as well as your financial future alongside bitcoin’s growth over the coming decades.
High-time preference behavior isn’t necessarily always a net negative, but understand that in the long run, your low-time preference goals are what will keep you enjoying life throughout every stage of the journey.
FAQs About Time Preference
Q: How can I extend my time preference?
A: To extend your time preference, there’s plenty you can do, such as setting clear long-term goals, practicing delayed gratification, investing in education and skills rather than consumption goods, minimizing unnecessary debt, and more. Single out the things and actions that reap long-term rewards and invest in those.
Q: Is having a low time preference always better for buying bitcoin?
A: Having a low time preference falls more closely in-line with bitcoin’s long-term thesis. If you expect results too hastily, want to cash in on short-term profits, or otherwise lose sight of the bigger picture, bitcoin may not feel like a suitable option for you. However, if you’re in no hurry and want to focus on longevity, bitcoin offers a stable solution to an unstable financial foundation. How long adoption takes depends on many factors, so having a low time preference makes it easier to appreciate the journey instead of waiting for the destination.
Q: How does time preference help with decision making?
A: While having a high time preference may lead to near-term satisfaction, over the long run, a low time preference promotes more thoughtful decision making that prioritizes future benefits as opposed to immediate desires. This mindset fosters better planning, financial stability, and the ability to make choices that lead to sustained success.
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