The influence of fear and greed on investment strategies in the Crypto Currency
As the world is becoming more and more digital, the Crypto currencies have become a new border for investors who want to diversify their portfolio. However, with great potential there is a high risk, and two key factors can significantly affect the success or failure of investment in the cryptocurrency of the currency: fear and greed.
Fear is a natural response to uncertainty and risk, and has played an important role in the configuration of human behavior throughout history. In recent years, fear has been particularly common in the cryptocurrency area. Increasing the instability of the price and regulatory uncertainty has created an environment in which investors are increasingly hesitant to take the risk.
Psychology of fear
Fear is often characterized by larger heart rate, rapid breathing and greater warning sensation. When confronted with uncertainty or risk, the end of our brain (the emotional processing center) triggers a response of fear, releasing stress hormones such as adrenaline and cortisol. This can lead to impulsive decisions that may not be based on a rational analysis.
In the context of investment in a cryptic currency, fear can be manifested in several ways:
- Fear of loss : The possibility of losing money can make investors become too careful, leading them to maintaining a long period or fully investment.
- Fear of loss (FOMO)
: Pressure to follow in the market and timely investment can create an ambulance, which states investors to make impulsive decisions.
- Fear of an unknown : uncertainty in the future direction of cryptocurrencies can lead to an investor to avoid complete investment or adopt conservative strategy.
Psychology of greed
Greed is contrary to fear, but it is also a significant factor in investment strategies in the Crypto currency. When you face possible rewards and advantages, the system of rewarding our brain (ventral striatum) is activated, releasing hormones to feel good like dopamine. This can lead to an excessive emphasis on short -term gain and reluctance of investment in the long run.
In the context of investment in the Crypto currency, greed can be manifested in several ways:
- aimed speculation : Price -rapid prices potential can create a strong incentive to buy a cryptic currency, even if there are few fundamental reasons for it.
- Excessive fence
: The desire for fast profit can lead to investors to overcome or participate in frequent purchases and sales, which can further enhance the volatility of the market.
- Investment time : Pressure on timely investment can cause investors to take over excess risk, hoping to take advantage of the opportunity.
The influence of fear and greed
Research has shown that fear and greed can significantly affect investment decisions. The Study of the Cambridge Alternative Finance Center has found that:
- Fear is more influential than greed : According to the study, fear was responsible for approximately 70% of the withdrawal of investors from the cryptocurrency exchange between 2017 and 2020.
- Greed exceeds short -term fear : Research has shown that investors overly respond to pricing fluctuations and make impulsive decisions encouraged by the desire for fast profit.
Conclusion
Although fear and greed can be powerful investment promoters, they should not be allowed to issue investment strategies in the Crypto Currency. Understanding how these psychological factors affect investors’ decisions, investors may develop more effective risk management techniques and make informed decisions about their investments.
In conclusion, the relationship between fear and greed is complex and multiple. Although fear can initiate impulsive decisions, it is crucial to recognize that greed can also increase investment behavior.
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