Why are we obsessed with crypto?1st December 2021
A couple of years ago, the word ‘cryptocurrency’ would have conjured up images of a secretive, underground currency and yet today we see the biggest financial institutions and news outlets in the world dedicating space to it. Examining the psychology around crypto currency can reveal how and why it has become the phenomenon it is today.
People’s behaviour can be explained in part by their underlying psychological needs. For example, people have an inherent need to belong, to be free, to be in control – and so on.
But those needs are not evenly distributed – each of us has a slightly different pattern of needs that guides our decisions.
Those of us who have a particularly strong drive to belong may be more interested in the sense of identity and group membership that investing in crypto gives us.
There is an exclusive culture that surrounds crypto. For those people, crypto not only offers financial opportunities, but it also gives you access to the conversation and 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. And – while Crypto currencies have the attention of major financial institutions – they are not yet considered ‘mainstream’ and so crypto investors can continue to view themselves as radical.
Levels of risk appetite can also help to explain why people are flocking to crypto right now.
Those of us with a higher appetite for risk and excitement may be drawn to crypto due it’s volatility and the potential that it holds for higher returns. It provides instant gratification compared to more traditional, ‘boring’ investments like ISAs or bonds.
Crypto-excitement may also be driven by the availability bias. This is the cognitive heuristic that makes us pay attention to things that come more easily or vividly to mind. It’s why we are more afraid of shark attacks than we are of car accidents, and demonstrates our limited capacity to deal with probabilities.
In the case of crypto, stories of people who made a life-changing fortune investing in crypto dominate the headlines and our social media feeds. We see these seemingly average people become millionaires and we think that could have been me.
This illusion of obtainable opportunity is a major attraction 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 – like being able to buy a home – seem out of reach.
In this context, the stories that we hear about crypto are making financial freedom feel more possible, encouraging young people to invest.
Crypto currency hits a number of psychological hot buttons – it manages to bridge our needs for control and belonging by being a hot ticket into a seemingly exclusive group.
It offers the potential for rewards that will draw 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.
By Charlotte Bordell, Business Psychologist at Innovationbubble