Exploring Psychological Phenomena That Affect Decision-Making of Crypto Traders

Understanding how other people trade will help you understand market movements that would otherwise keep you puzzled. Just think about it: cryptocurrencies are usually not tied to real-world assets, so you can speculate that because there’s an armed conflict brewing in an area that’s a mass producer of X resource, its price will go up.

On the other hand, one of the things that you can base your predictions on is the psychology of the masses. So, here are the psychological phenomena that affect the decision-making of crypto traders. 

1. Validation of making the right call

Just imagine a scene of someone who screamed from the top of their lungs at their friends that, at one point, BTC would be huge and that they should invest as soon as possible. Imagine all of this taking place in 2012. 

Regardless of all the financial gain, just think about the bragging rights.

Sure, you may have missed the opportunity last time, but now, you’re not just looking for the best crypto to buy; you’re looking for the best NEW crypto to buy. This way, you’re not just getting the financial gain; you’re also getting a chance to rub into everyone’s face that you were right. Now, all of a sudden, you’re not just rich; you’re a rich visionary.

Now, no one gets it right all the time. In fact, when it comes to mastering new skills and learning the ropes in a new field, there’s a lot of trial and error. This is why one of the first big filters in the field of crypto investment is the first wrong call. This is when a lot of people just give up.

Then, there’s the patience and the waiting game. Even if you figure out which coin will be big, when is this explosion of value going to happen? Some people just lack the patience to wait it out.

2. The thrill of taking a chance

One of the biggest problems with crypto investors is that some of them enter this field in order to take a chance. This is never a good thing, and if you’re here for adrenaline, it’s better to go to a Bitcoin casino and make a bet. Your odds will be the same, the results will be immediate, and you’ll get your adrenaline fixed. The problem is that investing and gambling are not the same.

You see, humans are animals by nature. They’re designed to run away from predators, try foods that might kill them, and never know what tomorrow will bring. Today, most people live sedentary lives, but this need to use their adrenaline remains buried deep. So, they try to manifest it in any activity they have access to. 

Extreme sports, betting, and some forms of risky behavior are nothing more than the manifestation of this natural phenomenon.

The biggest problem with investment (crypto and traditional alike) is that it has to be data-based. Trading when emotional is never a good idea, but this is a separation that a lot of people can’t make. Those who manage to achieve this state of mind will have the true investor’s mindset and already be significantly ahead of their competitors

3. Fear of missing out (FOMO)

In the first section, we’ve mentioned an idea of a person who didn’t miss out on BTC. The reason why this hits so close to home is because everyone else did. The worst part is that the memory of this is still etched in our minds, and it impacts our future decision-making.

One of the biggest problems with FOMO is that it inspires irrational buying. It’s like buying an item that you don’t need because it’s on discount and it won’t stay discounted for long enough. With crypto, people assume that the value is going up and that if you don’t buy now, the cost will only increase and you’ll have to buy it at a more expensive cost on a later date.

Naturally, this is a phenomenon that often inspires mass hysteria, not individual instances of erratic behavior. When this happens en masse, the phenomenon causes an increasing volatility. Why? Well, because the increase in value isn’t dictated by anything objective, like a new scientific breakthrough.

As a result, this is also contributing to the creation of bubbles. Metaphorically, it’s cutting the branch that you’re sitting on.

Worst of all, people under FOMO rush to put all their money into a single asset and completely ignore diversifying their income sources.

4. Herd behavior

People are social beings, and as such, they’re subject to a lot of social influence. We hear stories about how, in order to make it, you have to leave your hometown, live a draconian lifestyle, or undertake a lot of sacrifice. We hear it all the time from people we see as close, and we never even question the validity of some of these claims.

The problem comes when information (in this scenario, information regarding crypto) comes from someone with authority. The worst part is that it’s not even authority in the field but authority in your personal life. Someone you’ve trusted your whole life (a neighbor, a friend, or even a teacher) is advising you to invest in crypto. How hard are you going to question it?

This “herd behavior is, in psychology, also referred to as mimetic desire. It’s like a kid never even noticing a toy until someone else starts playing with it. The same principle applies to adults, even investors. The more people join in, the more you’ll want it.

Then, there’s a common human misconception of believing that there’s safety in groups. After all, what are the odds that so many people got it wrong? This is a question you don’t want an honest answer to. If you do, just google market bubble or amplification of price movement caused by hype.

5. Trust in new technology

There are a lot of crypto-related technologies and with each implementation of blockchain into mainstream tech like smart contracts, people start believing more and more in crypto. The problem is that they’ve seen the explosion of BTC, and they believe that the next one is imminent. With each new breakthrough, they believe that their time (before everyone catches on) is almost out.

Crypto adoption is also increasing. Today, you can pay with more vendors than ever before. In 2017 and 2021 (every time there’s a massive explosion), there are talks about how it’s a matter of a month before you pay with BTC for every hot dog stand. While this future is almost certain, we’re not there yet.

Today, people also have access to robo-traders. This is an AI-powered technology that allows you an in-depth analysis of the market unlike anything ever seen before. This is a great equalizer for all those who couldn’t afford high-profile market analysts on their payroll.

Understanding the psychology behind investments helps you make better decisions

Ultimately, you need to understand how people make their choices. This way, you’ll know when to copy their trades and when to “bet” against them. Always think level-headed and assess whether you’re under the influence of these psychological phenomena yourself. Chances are that these effects are pulling your strings without you even being aware of it.




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