Hidden forces behind the investment of cryptocurrencies: Understanding the role of emotion
Crypto currency was a high example of the power of emotions in making financial decisions. Fast prices fluctuations and unpredictable market trends have led to many investors questioning whether their emotional bias launched their purchase decisions. In this article, we will break into the psychology behind the choice for investment in the cryptocurrency of the currency and explore how emotions play a significant role in the design of investors’ behavior.
Emotional Rollercoaster: Why are emotions essential
Emotions can also be a blessing and a curse when it comes to financial decision. On the one hand, emotions such as fear, greed and excitement can make us invest more or less than we would have done if the logic and analysis had ruled the bark. However, on the other hand, emotions can stray us by slamming our judgment and impulsive decisions.
In the cryptocurrency market, emotions are particularly visible in the following areas:
- Risk Aversion : Some investors may consider the crypto currency too unstable or insecure, which leads them to avoiding investment completely due to fear of losses.
- Greed
: The promise of a high yield and fast respect in the temptation is to be over -investing in the Kripto currency excessively, neglecting signs of caution like volatility in the market.
- Fomo (fear of disappearance) : Social media platforms have created a culture of Fomo, where enthusiasts often give a priority to the next major jump price compared to rational analysis.
Psychology of Investment in the Crypto Currency
So, what drives these emotional reactions? Here are some psychological insights:
- Confirmation bias : Investors tend to seek information confirming their existing views, at the same time neglecting or diminishing contradictory evidence.
- loss aversion : Fear of loss more than acquired can lead investors to excessively assign capital to the Crypto currency in search of the next great gain.
- Emotional attachment : Crypto currencies often evoke strong emotions such as excitement, euphoria and anxiety, which makes it easier for investors to make emotional investment in the market.
Impact on Investment Decisions
As a result of these emotional factors, the decisions on the investment of cryptocurrencies may influence:
- Social media : Social media platforms have created the effect of snowballs, where enthusiasts enhance their views through likes, shares and comments.
- Sensory experiences : visual and hearing stimuli from social media, internet forums and news can create a sense of excitement or euphoria over a crypto currency.
- Personal relationships : Investors often form emotional relationships with their favorite crypto currencies, which leads them to keep them longer than necessary.
Emotional influences mitigate
Although emotions are a characteristic part of the investment process, there are ways to alleviate their influence:
- Diversification : Spread investments in different classes and assets to reduce exposure to any fluctuation in the market of individual investment.
- Education : Stay informed about market trends, regulations and risks before investing.
- risk management : Set clear goals, risk tolerance and stop levels to avoid impulsive decisions based on emotions.
Conclusion
Emotions play a significant role in designing decisions on the investment of the crypto -valute. Although great rewards and uncertainty of this market can be attractive, it is crucial to recognize these emotional factors and take steps to alleviate their influence. By understanding how emotions influence investment behavior, we can make more information decisions that are aligned with our financial goals.
Recommended Read:
- Investment Psychology Dan Ariely
- Fear, Greed and Market to Risk Robert J. Shiller
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