Investors should view the historic pullback in stocks and bitcoin as a lesson on the dangers of overconfidence, according to market watcher Paul Hickey.
Hickey, co-founder of independent research firm Bespoke Investment Group, cites dangerously high optimism as a chief reason for the market turmoil.
"You could look at the big run-up we've seen in bitcoin, and just highlight that as another example of overall consumer and investor enthusiasm," he said Wednesday on CNBC's "Trading Nation." "In a strong market, people tend to take more risks and move into some riskier assets."
In the months leading up to the stock market's free-fall, Hickey observed more and more investors acting as if they were entitled to uncharacteristic gains. It came as stocks were breaking record after record — until last Friday's tumble.
Hickey contends the markets were ripe for a sell-off, which was sparked by converging factors including worries that rising wages will spur higher interest rates, pension fund re-balancing and short volatility ETFs blowing up.
He doesn't buy the notion that the markets are broken. Hickey, who views the sell-off as a buying opportunity, also blames the plunge on a volatility shock sparked by a long period of calmness.
"It seemed abnormal," he said. "But compared to other periods, we've seen these types of pullbacks and big spikes in volatility before."
As violent as it became, he sees the volatility jump as a short-term challenge.
"It's more of just a reality check for investors," Hickey said. "[They] almost feel like 5 percent monthly gains are a God-given right."