Cryptocurrencies ... Bitcoin ... Dogecoin ... mining ... Coin exchange... Altcoin…
Perhaps you are already familiar with these terms, perhaps even entering cryptocurrency exchanges, trading, studying technical analysis, reading relevant news, placing limit orders.
Or, you are familiar with these concepts from social media, from your friends, from what you read, but you do not know exactly what they mean, perhaps a little strangely follow the fact that people are increasingly interested in this medium.
These two options also point to a common fact: the so-called "phenomenon" of cryptocurrencies is increasingly becoming part of our daily lives and increasingly affecting people's economic, private and psychological situations.
In the content of this article, we will not talk much about what cryptocurrencies are and their logic, that is, the technical part of the work. What we're going to try to do is examine the direct relevance of such a current concept to human psychology.
What Is Cryptocurrency?
Very roughly speaking, cryptocurrencies are decentralized digital assets. After the emergence of Bitcoin as a digital currency as a product of blockchain technology in 2009, their number has steadily increased to close to 10,000 as of now. Overwhelmingly, it claims to find the answer to a digital problem. Such coins claim to offer advantages over traditional coins in terms of user privacy, low transfer costs, security, control and online payment.
There are many exchanges where cryptocurrencies are traded, you can sell or buy these coins from other people, they are very similar to traditional exchanges in this aspect.
What makes cryptocurrencies valuable? For output purposes, their value is based on the extent to which they solve a particular problem in the digital world. For example, will you send money abroad? A lot of EFT, Swift, etc. if you don't want to deal with cost and waiting times, send a little Bitcoin to the recipient, and in minutes, your transaction will be almost free. Or do you want to buy a nice add-on for a game you play on your pocket? With some cryptocurrencies, you can do this anonymously and quickly. Some cryptocurrencies aim to increase the integrity of every object connected to the Internet, while others allow you to have the original of a digital work of art.
But the stock market part of the business works differently. Here, the value of cryptocurrency is determined by the value that other people give to them, as well as its function, which we have described above, and often more than that. In other words, if a lot of people value cryptocurrency more and more and start acting accordingly (if they buy or don't sell what they have), its price increases, and vice versa, it decreases. In other words, the reason why its price has increased and decreased is similar to that of gold or the traditional stock market.
Let's get back to the real question: What is this cryptocurrency phenomenon, as some call it, "madness"? More than the economic part of the business and its global causes, why does a particular person turn to this kind of investment? Why does he transfer his money to this kind of investment rather than the traditional exchange, foreign exchange, real estate, interest? Also, what and how are their behaviors affected when dealing with this business? In short, what can be the reasons for this new trend, which has been growing in our environment recently, on an individual scale?
Let's try to study the answers to these questions.
Cryptocurrencies As A Rational Investment Instrument
This part of the job doesn't require much explanation. Stock market, bonds, bonds, futures, foreign exchange, gold, etc. like investment types, cryptocurrencies are an investment type. In addition to solving some problems in the digital world and economy, these digital assets can also be used by third parties as an investment tool or online shopping tool.
Taken as an investment instrument, the amount rotating in the cryptocurrency market reached $ 2 trillion for the first time in April 2021.
Bitcoin has already been in the top 10 for some time under the dominance of the world's largest companies in market volume. Ethereum, the second largest cryptocurrency, is pushing the top 10.
Given how much its volume has grown since the emergence of this economic environment in the last 12 years, it is not difficult to predict that the number of people who want to grab a share of the cake will increase even more.
The top three countries in the world currently have the most cryptocurrency accounts, Nigeria, Vietnam and the Philippines respectively.The inflation rates of these countries that we are talking about are also higher than in other countries, so when people in these countries invest their earnings in a bank account and wait, the value of their money decreases rapidly where it stands. This, in turn, leads people to all kinds of investment tools, including the cryptocurrency market.
FOMO (fear of missing out - fear of missing something)
Anxiety about staying away from what we are increasingly hearing about and more and more people are interested in, enjoying, missing the agenda, and therefore falling behind is called the fear of missing something ("Fear of Missing Out" or "FOMO" for short). FOMO is a state of anxiety focused on the feeling of being deprived of a pleasure that other people receive. The feeling of missing something important in our increasingly globalized lives thanks to the Internet can even create permanent anxiety in people. In one study, the distinctive features of FOMO were laid out as follows:
"It's the anxiety you feel about people like you doing something more or better than you, knowing more or having more, and sometimes it's a feeling that eats you up."
FOMO is the concern that other people have material or spiritual gain because of what they do and do, and we are deprived of it. This anxiety gives us a compelling incentive to close the gap by mobilizing us. In many cases, this is the impulse that underlies your behavior to constantly follow the pages of your social media apps and even look at them over and over again, updating them. Bianca Bosker, Senior Technology Editor At The Huffington Post, says:
"FOMO is the anxiety that sometimes drives you, sometimes scares you, that you stay away from certain things that are absolutely magnificent. It could be a TV show, it could be a party, it could be a new device, or it could just be a pretty good burrito in a buffet. The important thing to keep in mind about FOMO is that it's not just a mental state, it's also a physical response. I, too, observe that as a victim suffering from FOMO, I sweat, itch, my heart speeds up and obsessively renew my Twitter feed."
In the same study, the same emotion is cited as the main reason why people open and look directly at their social media while eating, just before going to sleep, and even as soon as they get up in the morning.
Cryptocurrencies are also a topic on the agenda that has completely spread into both social and traditional media and the relationships in our social environment. We hear that a lot of people are interested in cryptocurrencies, "buy and sell", one makes ten, buys from the bottom or sinks. We're curious. We also want to stay out of this process and be involved in it.
Indeed, a study found that people with a higher sense of FOMO are more likely to invest in digital money.
This is becoming increasingly attractive to us, especially since people who have become very rich in this process come to the agenda. We, almost inevitably, use mental shortcuts in many cases. Mental shortening (Availability Heuristics) is a tendency to behave appropriately by remembering unusual examples rather than general statistics about a particular situation. Because we also see in the media people who have made very high coins from people who have lost everything because of cryptocurrencies, the probability that we will also be one of the winners seems even higher to us than it really is. After all, the number of crypto multimillionaires in our memory exceeds the number of crypto victims.
Another interesting example that comes to mind about FOMO is the Dogecoin issue. Dogecoin, a cryptocurrency created to make fun of other cryptocurrencies, is a digital asset whose price can sometimes be very sudden. A major reason for these outtakes is Elon Musk's tweets about Dogecoin. Yes, that's it... but in theory, what determines the value of cryptocurrency must basically be the technical infrastructure of that money, its function, which digital problem it responds to in what competence. Dogecoin's price increase is basically as follows:
When Elon Musk tweets about this, those who think that Dogecoin will have a sudden increase in its price start buying Dogecoin, many people think the same way that a furya occurs under the influence of FOMO, and when demand explodes so much, its price shows a sudden exit. I mean, the fact that people think that something specific is going to happen and act accordingly can really make that thing happen. This situation overlaps with the concept of "self-affirming prophecy" in psychology at a high level. For example, a person constantly tells his relatives, "you are plotting against me, you want to lock me up in a mental hospital."if he keeps saying, after a while, the probability that what he says will happen will increase (because such a delusion is already indicative of a mental problem). Or a person who thinks that his lover will leave him begins to restrict him, become jealous, not leave him alone, so after a while his lover really leaves him, and what the person thinks in the first place becomes real. This concept, that is, self-affirming prophecy, not only sheds light on some aspects of human behavior in interpersonal relationships, but is also effective in other areas, such as economics in different ways.
In the cryptocurrency world, a term called FUD is commonly used: Fear, Uncertainty, Doubt. Fuds that are sometimes deliberately spread in the form that a particular cryptocurrency will lose value can cause high value losses in that cryptocurrency. So sometimes certain prophecies can be deliberately produced to confirm themselves.
There's another case with FOMO and cryptocurrencies. Let's say you invested in a medium, and your investment doubled after a while. Isn't that great? You can take your money and go on that vacation you've wanted for a long time, or you can have your kitchen rebuilt. A happy ending ... No, it's not always like this. Those who bought Bitcoin in 2016 saw their money double in 2017, with a large proportion withdrawing their money. Yet if they hadn't, their money would have increased 17-fold in 2018. This lucky minority who did not withdraw their money in 2017 could now withdraw 17 times their money and be thankful for their lifetime chances... no, that's not the case either. Those who did not withdraw their money in 2017 would have 65 times their principal in 2021.
This example points to a historical reality, and almost everyone involved in cryptocurrencies is aware of this amazing process of Bitcoin to some extent. So those who see their money increase, or even increase a few times, are afraid to sell and convert their digital money into cash, because they think they can get many times more of their money if they wait. Of course, in this process, some make very large profits, but some also make very large losses. The main reason for their concern is that they don't want to miss out on possible bigger profits in the future.
A significant number of cryptocurrency owners "say"that after reaching a serious profit, they will withdraw their principal and reduce the probability of loss to zero by simply keeping the profit in the investment. However, it really is a lot less.[10] because if there is going to be a multiple increase again over time, they will not be able to make enough of this profit because they have withdrawn their principal.
Here we are faced with an interesting aspect of human psychology. As you walk down the road, you see 20 pounds on the floor and bow down with joy. When you are straightened up again with complete joy, you see that someone a few meters ahead of you has taken money from the ground in the same way, and the money he found is 100 pounds. If you had moved on and moved a little further, you would have found 100 pounds. Would your joy continue? Here is the situation varies from person to person.
Youth and digital attraction
It is known that the level of anxiety caused by FOMO is higher in young people. This seems to be one of the reasons why young people are more interested in the world of cryptocurrencies.
There are other obvious definitions between the cryptocurrency phenomenon and the approach of young people to this phenomenon.
According to a study, getting familiar with a "grip" called Bitcoin, seeing it as a positive financial technology and the currency of the future, thinking about using Bitcoin in the next 5 years, seeing it as the most important investment tool, and owning Bitcoin are all ahead of the under-35s. In other words, young people are more interested and inclined to cryptocurrencies, and their behavior is affected by this.
Even understanding the logic of cryptocurrencies requires a fairly high level of technical knowledge. What an ordinary person will encounter when you search the Internet about it will be analogies, some examples, and a rough frame, because the subject is really quite complex. In such a complex and technical issue, it can be said that young people have some advantage over others.
In fact, we basically know that young people are always more closely related to technology on average. Aside from seeing technology as a medium to be afraid of, they tend to use it as much as possible and spend time with it.
It is known that young people are more enthusiastic about buying a new phone, learning about a new operating system, using a new social media program.
In addition, the ability to adapt to innovations is also higher at a young age. This medium is also quite new and seems to attract more young people because it is directly related to technology.
Our country also has a relatively young population and we are in the top ten countries in the world in terms of the proportion of people who “own” or have used cryptocurrencies in our country.
Again, let's remind that older people already have a lower tendency to take risks in general, while they have a high tendency to look at the issue of cryptocurrency as “something that has no real value in the real world”. However, the value of the coins or gold we use is not spontaneous, meaning that there is no concrete equivalent in the real world. The value of everything we call valuable is because most people consider it valuable. In other words, the value of the money that states produce, the ring on your finger, the bracelet at your wedding, is based on the common belief of people.
Gambling or investing?
Is cryptocurrency trading an investment or a gamble? The basis of this problem is based on the awareness of investment and gambling.
"The safe always wins."you've heard his statement, and that statement is true for casinos. According to research on this issue, the longer you keep your investment in traditional exchanges, the more likely you are to win.
Indeed, investment instruments are generally longer-term, with the investor avoiding the tendency to withdraw or change their investment for months or even years. However, gambling is shorter-term: what your losses or gains will be from betting sites and tools will occur within days or even hours.
Investment and gambling are also based on risk, but when investing, a person relies on their knowledge of the subject, while in gambling, in general, they rely on their luck. Of course, some of the gambling tools also require partial ability; for example, in order to be more successful at poker, you need to have a high chance and gaming skills. However, in general, gambling can be said to be more based on luck than investment.
We mentioned that one of the main differences of investment is the knowledge of the person in the field in which he invests. You can observe that many people engaged in cryptocurrency do not know what the basic function of a particular "coin"in which they deposit their money is, what it works. This situation is closer to gambling. In addition, the price movement of some basic cryptocurrencies is more stable than others (Bitcoin, Ethereum, etc.). Prices for some are much more variable. Diverting money predominantly into these unstable "altcoins"can be considered to increase the gambling nature of the business.
The closest cryptocurrency trading comes to gambling is what we call "leveraged transactions." This type of person chooses to increase their possible loss or gain several times.
For example, let's say that two people invest 100 pounds each in cryptocurrency A. 2. The person also chooses the coefficient 5 using leverage. His goal here is to double his potential profit to 5.
But let's say the value of the digital money they invested fell by 10%. The first person loses 10 pounds, while the second loses 50 pounds. Note that this lifter can be even higher than 5.
This is a situation that, in other words, leveraged play, brings cryptocurrency trading quite close to gambling.
It should also be noted here: there are studies that support that men engage in riskier investments than women, while women, on average, are more successful in investing than men. There are also studies that support that this has some hormonal-based causes outside of gender roles.
Also, according to a study, the ratio of investment in cryptocurrencies to a person's total material wealth was higher in men.
In another study, it was concluded that an important element affecting the future price forecasts of low-priced stocks by stock market investors is the price of the stock. Accordingly, the lower the price of a stock, the investor has the misconception that the more the value of that stock will increase. For example, future growth forecasts for a stock with a lot of $ 10 are higher than for a stock with a lot of $ 100. The researchers called it the visible price illusion ( "Nominal Price Illusion"). Another study conducted by Roger and his colleagues in 2018 found that even financial analysts had this misconception.
When researchers looked at whether this error also applies to cryptocurrency prices, they concluded that the same error also exists in this medium, even more powerful.
In other words, cryptocurrency investors have the delusion that the smaller the value of a piece of cryptocurrency, the more it will rise in the future. However, this situation is not a financial reality with Real Money.
According to another study, cryptocurrency investors tend to have a high level of belief that they will have wealth through their investments in a short way.
Another study comparing traditional stock market investors with cryptocurrency investors found that cryptocurrency investors were more prone to gambling behavior, short-term investment, and seeking innovation and excitement.
Sunk Drain Fallacy
The submerged Cost Fallacy ("Sunk Drain Fallacy") is the tendency to continue your investment in a particular thing, even though you no longer logically need to continue it, or even know that if you continue, you will probably suffer loss. Investment here can be your money, as well as your time, labor, etc. can also be. For example, " whereas I gave my years to this relationship."his typical rhetoric points to this. The investment you make in this relationship can continue so that part of the investment (here for years) is not wasted. In gambling addiction, this is very common: the player who loses money continues to play to make up for the money he lost from the betting business.
Here, let's also talk about a common playing pattern in individuals with gambling habits: if he loses, he plays to compensate for his loss, and if he wins, "the money somehow came from the air, I play comfortably with it, I have nothing to lose."he plays. Ultimately Dec decisively, he plays until he loses, even if he wins, or in many cases loses everything.
By the way, let's talk about another situation where some people tend to take more risks, as well as make transactions similar to gambling, rather than investing in the crypto market:
The general effect of unhappiness
For a person who does not enjoy his life much, whose life satisfaction is low, the loss of his investment is, of course, an extra cause of unhappiness: when he is unhappy, he has become even more unhappy. Happy people who enjoy their life experience similar unhappiness. But beware the difference: unhappy people are more used to unhappiness. A happy person, on the other hand, experiences a greater collapse in this process, since he is not very used to such unhappiness.
So happy people tend to invest more “solid” and watch safe havens, while unhappy people are more likely to engage in risky behavior (such as alcohol, gambling, drugs) or risky investments than happy people.
In addition, in a study that we mentioned earlier, the fact that there is a high degree of association between the level of FOMO in a person and the overall happiness of that person also supports this. The more unhappy and uneasy we are, the riskier choices we can make.
As for whether the cryptocurrency market is investment or gambling, as a result, we can say: this depends on the person's behavior in this market. This information about digital assets on the market, or, more short-term, buy-sell transactions is doing, if that makes leveraged transactions, win or lose if he continues to make risky choices, a lot of people, it can be said that resides in behavior that can be called gambling.
Boredom, Occupation
As countries of the world, we are going through strange periods. A global pandemic that has been going on for over a year is threatening our health. In order to deal with this threat, measures have been taken to a certain extent in United Kingdom, as have many countries. Many people began to spend more time at home than ever before in their lives. A serious part of them didn't know what to do at home.
Research shows that during the pandemic period, people who spend more time on their existing hobbies, acquire new pastimes and hobbies, spend this process relatively more comfortably. Crypto currency market despite continued for a very long time, this period of economic and read the news in this direction that have a positive impact on the market and hear what the impact of human hands and began trading on a part with extra free time to enter this market. People who had no prior knowledge of the subject "short position, needle throw, Fibonacci curve, etc."he began to study the terms used in traditional exchanges for many years, such as.
During the pandemic period, which severely affected the entire world, research shows that the speed at which people digitize is also increasing. As people with free time begin to digitize even faster, it also seems natural that they are interested in a phenomenon at the center of the digital world, that is, the world of cryptocurrencies.
Result
Dealing with cryptocurrencies essentially represents a "culture,"says Finn Breton, a science and Technology professor at the University of California Davis. According to Breton, these people see themselves as "radicals"who are somewhat discrete and oppose traditional economic institutions and processes. The identity they have acquired in this way includes giving importance to privacy, underestimating States and the basic institutions of the state, and mastering technology. Today, this endeavor offers a beautiful dream for their future, a vision to hold on to, especially to people who are pessimistic about their future.
It is possible to say that such a dream and vision is more needed, especially in some countries. According to a research report published in 2020, young people in United Kingdom are very pessimistic about their own future. They believe that their long-term income and career in their professional life depends on factors such as favours, torpedoes, luck, and not on their good work, and they are pessimistic about their future.They set out their expectations of life as guaranteeing the minimum conditions necessary to live, but they are even pessimistic about what they can achieve.
Many well-known economists, scientists and senior corporate executives say cryptocurrencies are indispensable to our future, while some say it is a temporary, insecure and even dangerous fad. As the debate over the issue continues in flames, more and more people around us are renewing the display of cryptocurrency apps on their phones. Of course, there are large-scale sociological and economic reasons for this situation, and they are constantly being discussed, and research on this issue continues. The factors we are talking about here and many more together constitute this phenomenon in a very intricate structure.
In this article, we touched on some of the reasons that lead the individual to this new endeavor on a personal level and on certain behavioral trends in people in the cryptocurrency world. There is no doubt that there are many psychological, sociological and economic factors in addition to these. You may have noticed that even among the issues we address here, there is a high level of interaction: in countries with bad economies, people are more willing to try different types of investments to protect their money. As the negative impact of the pandemic on the economy and the free time it provides to people increases, young people who are already pessimistic and unhappy about their future take risks trying to reach it, imagining a world in which they are happier in the future. By observing happier and luckier people in other countries of the world, he uses the IT skills he has to live a life like them. Apart from living a life of prosperity, those who are not sure that they can provide the minimum living conditions by working, some are looking for salvation in quite risky investment vehicles. Those who do not have much to lose are trying to believe that a more satisfying life is possible by risking losing everything they have left. In order to hold on to life more, they hold on to the hope of a good life for themselves.
The issue remains up-to-date, and we will see how the process will work in the future together.