The Behavioural Psychology behind Crypto

1st December 2021

A couple of years ago, the word ‘cryptocurrency’ would have conjured up images of a secretive, underground currency. Yet today we see the biggest financial institutions and news outlets in the world dedicating space to it. Examining the behavioural psychology around crypto currency behaviour can reveal how and why it has become the phenomenon it is today.

Psychological needs 

Understanding peoples underlying psychological needs can help us understand the drive to buy crypto. For example, most people have inherent needs to belong, to be free, to be in control – and so on. 

But the priority and amount of importance we assign to those needs varies between people – we all have a slightly different pattern of needs that guides our decisions.

Take those with a strong drive to belong, they may be more motivated by the group membership that investing in crypto gives us. 

There is an exclusive culture that surrounds crypto. For these people, crypto not only offers financial opportunities, but access to the identity of being a crypto investor. 

Others are drawn to crypto for different reasons. Where some people want to fit into the crowd, others prefer to set themselves apart. While major financial institutions are paying attention to crypto, traditional investors don’t consider these currencies as ‘mainstream’. This encourages crypto investors to view the decision to buy crypto and consequently themselves as radical.

Risk appetite

Levels of risk appetite can also help to explain why people are flocking to crypto right now. 

Due to its volatility and potential for higher returns, people with a higher appetite for risk are often drawn to crypto. It provides instant gratification compared to more traditional, ‘boring’ investments like ISAs or bonds.

Behavioural psychology and cognitive biases

Availability bias may also help to explain this crypto-excitement. Availability bias is the cognitive heuristic that makes us pay attention to things that come more easily or vividly to mind. This is why we are more afraid of shark attacks than we are of car accidents, and shows our struggle with probabilities.

In the case of crypto, stories of life-changing crypto fortunes dominate headlines and social media. We see these seemingly average people become millionaires overnight and we think that could have been me. 

This illusion of this obtainable opportunity is one of the major attractions of crypto currency.

For young people in the current economic climate, it is difficult to envisage making significant wealth. Achieving financial freedoms that previous generations might have taken for granted seem out of reach. 

In this context, the stories that we hear about crypto making financial freedom feel more possible, encourages young people to invest.

So what?

Crypto currency hits a number of psychological hot buttons – it manages to bridge our needs for control and belonging by being a hot ticket for access to a seemingly exclusive group.

It offers the potential for rewards that draws in those who are looking for excitement. 

And it manages to perpetuate the story of those rewards across news outlets and social media globally. 

There is a lesson here about all new technologies that offer something exciting, and how a rounded understanding of our psychology can explain why those technologies suddenly become cultural phenomenon.

To find out more about how we find answers to the ‘why?’ questions, visit https://innovationbubble.eu/how-customer/  or get in contact by emailing [email protected]

 

By Charlotte Bordell, Business Psychologist at IB

Author: Innovationbubble