Crypto Investment Paradox: The Urge to Buy When Prices Are Up
When is the right time to invest in crypto? There’s no right answer to this question, but there’s a recognizable pattern in investor behavior – buying more when prices are high.
Psychologists and marketers would call this phenomenon mental shortcuts, perceived value, or cognitive bias. The brain gives a signal that if the item costs more, it’s worth it. As interesting as it is, the tendency to spend on things at higher costs is like a rule. The most expensive item in the store hardly goes unnoticed, and as one study shows, expensive wine tastes better than a cheaper one despite its being the same.
In most cases, our buying decisions are driven by emotions. The principle works everywhere, and crypto is not an exception. The rising price of Bitcoin, for example, gets more attention, and people rush to take their part in the market. Many reconsider their views on crypto, while others are ready to take on big risks. And, this happens every time Bitcoin has been around since 2009.
Another thing to take into account is that in crypto, prices are based on supply and demand. The more people buy, the more the prices rise, there’s more attention, new investors join, and prices are going higher. At the same time, there’s a concern that prices will climb even more, and there will not be a better time to buy.
Meanwhile, falling prices have a different effect. There are investors with the “buy the dip” mindset, who are happy to invest in crypto at lower costs. However, the red market is alerting many and raises concerns that prices will drop further. Fear drives people to sell their assets, and the overall picture doesn’t seem very attractive for new investors to join in.
People buying Bitcoin at low vs high prices. Source: Reddit.com
How to Deal With Emotions for Better Investment Decisions?
Market decisions are driven by two main emotions: fear and greed. A look at the fear and greed index provides a picture to figure out investors’ attitudes.
When the index is low, it signals selling pressure. People sell out of fear of losing money. On the other hand, when the index is high, it signals that investors are greedy to buy more and make a profit.
Decisions based on extreme greed or fear can often be poor and irrational, affecting even the smartest and most experienced investors. When you’re overwhelmed with fear, you can sell valuable assets, while greed can lead to taking big risks.
Crypto is like a rollercoaster ride. When prices go up, the typical human reaction is to rush to invest and not miss out on opportunities. This phenomenon is known in crypto as FOMO (Fear of Missing Out). Fear that a person will miss their chance to take part in the growing market makes them invest unreasonably. In this situation, a buying decision is based on fear rather than knowledge, and analysis. It’s an emotional purchase without a further plan and risk considerations.
The key to dealing with emotional decisions is replacing them with informed ones, focusing on the underlying asset instead of guessing price movements. For example, instead of regretting not buying Bitcoin years ago to be rich today, it’s better to learn what it is, why it was created, how it works, and why its adoption has grown. Understanding these aspects will provide a more informed perspective on whether it’s right for you to invest in Bitcoin or not. Cases from many people show that even if you had invested in Bitcoin earlier, chances are high that you would have sold it soon or lost access to your account.
Making investments when understanding the market. Credit: @Mandrik and @BestMemesOnX, twitter.com
That being said, emotions are a key part of the market, and it would be magic if the investment paradox disappeared one day. People will continue selling at lower prices and buying high because that’s how our psychology works. Being aware of this, we are less likely to be influenced by higher prices and make buying decisions based on our beliefs and knowledge.
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