Psychology behind investor decisions in the crypto market
The cryptocurrency market has been a wild road for investors over the past decade, prices rose to unprecedented heights and fell to the low points of the record. However, despite volatility, many investors continue to buy optimism and enthusiasm for this space. However, under the surface of seemingly impulsive decisions, a complex network of psychological factors that can affect investor behavior.
1. Fear and greed
One of the most lasting theories of financial is the concept of fear and greed. During market uncertainty or economic downturn, investors are increasingly afraid and risking, and leads to assets such as shares and bonds to protect themselves from potential losses. Meanwhile, when the market blooms, they can experience an increase in emotions and take advantage of this momentum by buying cryptocurrencies like Bitcoin.
However, this psychological phenomenon can be problematic for investors who do not know the markets or do not know the underlying assets. When fear retains, investors can make impulsive decisions based on emotions rather than careful analysis, which can lead to costly mistakes.
2. Confirmation Distortion
Investors have often formulated pre-formulated ideas for cryptocurrencies and other emerging assets that can lead to cherry pick information that support their existing beliefs while ignoring or discounting contradictory evidence. This is called distortions that confirm selective attention, and this may lead to investors to believe what they want to hear – even if the data is not supported.
For example, an investor can only read a promising new cryptocurrency after its price has increased, confirming their existing bias and prompts them to make further bets on the potential of the asset. Similarly, an investor who is skeptical about cryptocurrencies is likely to ignore or reject information that contradicts their opinion, even if it provides impressive evidence.
3. The loss avoidance paradox
Investors often fear that they will lose more than the potential profit of investment. This phenomenon is called a loss of loss and may lead to investors to make impulsive decisions based on the desire to avoid potential losses, not to maximize possible returns.
For example, an investor’s portfolio can invest a significant part of their cryptocurrency because they are afraid they will lose money if the price of the asset is falling. However, the same fear may cause them to neglect other investment opportunities or to take excessive risk to achieve short -term profits.
4. The illusion of control
Investors often believe they control market movements and assets, which can be a strong psychological influence. By attributing the management of markets to their own actions (or lack thereof), investors are more confident and controlled and may lead to them to take excessive risk or impulsive decisions.
In reality, markets are extremely unpredictable, and investors’ behavior is often led by non -control factors – such as market emotions, economic trends and external events. In recognition of these restrictions, investors can establish a healthier relationship with risk taking and investing in general.
5. Social influence
Social influence plays an important role in developing investor behavior, especially in the cryptocurrencies. Investors are often influenced by the opinions and actions of others, which may lead them to apply certain investment strategies or attitudes based on what they see around them.
For example, an investor can follow another successful investor who buys a particular asset or invests largely in cryptocurrencies because it does it at the same time.