Cryptocurrency is still very much in its infancy, with the market just opening up to the public. The wave of cryptocurrencies that have been created since Bitcoin was created in 2009 has been nothing short of staggering; so many people are afraid of missing out on this new revolution, and they may be willing to spend ridiculous amounts of money on a coin that isn’t even worth much right now.
This could mean a lot of things: you could buy into an ICO knowing full well that the company probably won’t even deliver its product or service. You could get in early on a coin, hoping to profit from its rise because you think it will go higher than most other coins. Perhaps you’re investing for the sake of being part of something truly revolutionary (right now, though, it feels like all these projects are trying too hard).
Is it trading or gambling?
Do you think of your crypto transactions as an investment or a bet? This consideration is important because the distinction between the two affects the way you approach cryptocurrency; and by extension, how much money you can expect to make. Trading and gambling are, at their core, different states of mind. Trading is an actively engaged process that requires research and strategy planning. It requires constant attention to market trends. It’s a risky endeavor with potentially large payoffs. Gambling is a more passive process; it’s based on luck and intuition rather than careful analysis.
Even if your initial goal was to visit a cryptocurrency exchange to trade as opposed to gambling on cryptocurrencies, it is not uncommon for traders to end up behaving like gamblers– and vice versa. Sometimes, crypto trading can turn into compulsive gambling behavior simply due to boredom or lack of carefulness. Other times, the opposite can happen: cryptocurrency speculators may sit back and watch their investments mature without any further trading activity.
The best way for traders to avoid unintentional gambling behavior is by maintaining a clear vision of what they want from their cryptocurrency experience. Do you want instant gratification? Long-term investing stability? If success in crypto means making as much money as possible in a short period through high-risk strategies, then gambling may be your preferred method (albeit less reliable). If it involves using well-planned strategies with gradual growth potential, then trading will likely be more successful over time (but significantly less exciting!).
The psychology of investing in cryptocurrencies
Understanding the psychology of investing can shed light on why people get hooked on cryptocurrency, says Professor Jaron Harambam at Erasmus University. In his paper, ‘Cryptocurrency Mania-The Psychology Behind It,’ Harambam explains that people have always been captivated by the idea of a “rare and valuable object.”
This is where behavioral finance comes in. Investing in cryptocurrency is risky because it’s so new and volatile. In general, our brains are hardwired to make poor investments: we’re prone to the gambler’s fallacy (we tend to invest based on what happened in the past), recency bias (we believe recent trends will continue indefinitely), and confirmation bias (we seek out information that confirms our own beliefs).
Bitcoin has been around for less than a decade, but its value has soared over 2,000% since 2016. It also doesn’t hurt that most of us are already addicted to social media, and platforms like Reddit make it easy to share ideas with others who are crypto-curious. When you see 10 or 15 people sharing stories about ‘turning $10 into $100’, you think about all the money you could be making if only you invested yourself.
Cryptocurrency as a status symbol
Sure, you’re not wearing it to school, but you are wearing it around your friends and family. This is how people in the know know that you’re in the know.
And if you don’t want a shirt, there are other things out there for those who want to announce their status as cryptocurrency users. You could buy one of Tesla CEO Elon Musk’s sports cars using cryptocurrency, for instance (he recently announced that customers can now make direct payments with crypto). Or you could go over the top and get yourself a Lamborghini.
Compulsive behaviour is a red flag
Compulsive behavior is a red flag. If you find yourself waking up at night to check crypto prices, or if you’re constantly looking at your mobile phone for updates, it’s time to step back and re-evaluate your investment strategy.
Most people who enter the crypto market do so with the best intentions – they want to make money – but there is a very fine line between trading on a platform like OKX and gambling. One of the most important things you can do as an investor is to recognize that line before you cross it. When it comes to compulsive behavior around cryptocurrencies, however, the line has already been crossed.
David Tobin did his degree in psychology at the University of Hertfordshire. He is interested in mental health, wellness, and lifestyle.
