When it comes to investing, it’s better to make logical decisions than emotional ones. Getting caught up in momentum, recent losses, and media headlines can lead to bad decisions that hurt a crypto investor’s long-term returns.
Unfortunately, most investors let their emotions take the wheel when they’re trading cryptocurrencies. A ChainPlay survey found that 92% of crypto investors make emotional buying decisions.
What Drives Emotional Crypto Investing
SponsoredIt’s a troubling sign for investors who want to generate long-term returns with crypto. A few catalysts lead to emotional investing. And investors also have several ways to control their emotions.
The ChainPlay survey didn’t just reveal that many people let their emotions guide their investments. The survey also highlighted the five most common emotional triggers among investors.
Rapid price surges were the top emotional trigger, affecting 31% of investors. Trading volume spikes and media coverage were the next two, at 21.7% and 14.6%, respectively.
Social media hype and new token launches rounded out the list, impacting 13% and 11.7% of investors, respectively.
High volatility or the thought of significant price movements in the future seems to drive crypto investors’ emotions. Getting emotionally invested in a crypto can cause investors to hold on to an asset for too long or exit it too early.
While stock investors also make emotional trades, crypto investors may be more susceptible since their assets trade 24/7.
Sponsored SponsoredStock investors can’t make trades over the weekend, which gives them time to reset some of their emotions instead of making bad decisions.
On the other hand, the crypto markets are never asleep, always presenting investors with social media hype and volatility that they can act upon.
Most Self-Proclaimed Long-Term Investors Quickly Abandon Their Assets
The survey also found that many of the people who say they are long-term investors sell off their crypto positions within one year.
SponsoredAlthough 87.6% of respondents said that long-term potential is their main reason to purchase a cryptocurrency, only 33.4% of crypto investors hold their investment for more than one year.
“This behavior directly contradicts their stated investment philosophy and demonstrates the gap between intention and execution in crypto investing,” ChainPlay stated when sharing the survey’s results.
Emotions and volatility can cause investors to abandon investments they had high convictions for just a few months ago. Repeating this behavior makes it easier to perform that same behavior again, just like any habit.
How To Avoid Emotional Investing
Although most crypto investors let emotions guide their investing decisions, you can be the exception to the rule. Recognizing that you let your emotions guide your crypto trades is the first step to solving the problem.
Diversifying into multiple cryptocurrencies and dollar-cost averaging can also keep your emotions at bay. Portfolio diversification reduces your risk. If one of your crypto positions doesn’t perform well, the others can make up some ground.
Sponsored SponsoredIt’s also good to focus on a cryptocurrency’s fundamentals instead of current price movements.
For instance, meme coins are more speculative than tokens with real utility.
If your only reason for buying a cryptocurrency is that it doubled over the past week, a constantly changing chart will dictate how you feel about that crypto.
However, if you are bullish on a crypto because of its utility, then your opinion is less likely to change if the crypto loses value but its utility remains intact.
Knowing why you are buying a cryptocurrency and thinking about the decision for a while can shift investors from emotional investing to investing with logic.
