How does volatility effect well-being?
The crypto world is well known for its volatility. Especially in the early days, digital assets experienced wild price swings, gaining or losing double-digits in the course of a day. It appears that the current bear market is no exception to this trend.
While wild price swings provide opportunities to make gains — if you’re lucky enough — the volatile behavior of digital assets can pose a threat to the mental and emotional health of investors.
Mental health is an extremely important aspect of human life, which, until recently, wasn’t given much importance in mainstream media and discourse. Finances and investments can play an important role in emotional well-being, while constant despair due to the volatility of the crypto markets can hurt.
This was well displayed after the Terra debacle, when the ecosystem’s stablecoin depegged, sending the crypto market as a whole into a spiral and eroding confidence in the crypto ecosystem.
Indeed, after the price crash, suicide hotlines for numerous countries appeared in the LUNA subreddit, as the savings and investments of many investors were wiped out in a matter of hours.
Fears and failures
Even when equipped with investment knowledge, beginners can make bad decisions under emotional pressure. In addition to technical and fundamental analysis, the right mental attitude plays an important role in trading. Under the pressure of emotions, rash acts can be committed, which usually cause mistakes and serious losses. These mistakes can be divided into several groups:
- Gambler syndrome: New investors begin to open a large number of transactions without thinking them through.
- Premature exit from a deal: At the first successful transaction, beginners tend to quickly take profits and close the position prematurely. In this case, they lose part of the profits that they could gain.
- Dependence on other market participants: Many traders are guided by the signals and opinions of established market participants. To obtain the maximum benefit, however, it is necessary to become independent of these factors.
- Coming to terms with losses: the cryptocurrency market is very susceptible to emotional trends. Prices immediately react to a variety of statements and rumors, so it won’t be possible to completely get rid of the influence of emotions.
- Euphoria from the first deal: The first profit gives the trader a positive emotion, which can only push them to become undisciplined.
Many crypto enthusiasts refer to FOMO, or the fear of missing out, on a potential deal. Another major fear in the crypto world is related to hackers. The digital, decentralized and often anonymous nature of crypto makes these assets more vulnerable to hacking and scams.
These are just some of the many factors that can affect the mental health of cryptocurrency investors. To limit the psychological impact of financial stress, it is important for investors to decide how much they can afford to risk.
Over the past couple of years, cryptocurrencies have risen and fallen many times, which couldn’t help but affect the mental health of crypto investors.
According to experts, crypto trading can turn into a real addiction. The first signs of this psychological disorder occur when traders constantly follow the price fluctuations in digital currency. Experts refer to this process as “day trading” and consider it to be another form of gambling, and people who are addicted to trading cryptocurrencies are referred to as “crypto addicts.”
The main symptoms of crypto addiction are muscle tension, anxiety, round-the-clock monitoring of digital asset prices and constant thoughts about trading digital currency even while doing other things not related to the crypto industry. All this leads to depression and insomnia.
In some countries, specialized programs have already appeared that help address mental health problems related to digital asset trading.
Who is at risk?
Luckily, not every crypto investor is subject to mental health issues.
Scientists from the Queensland University of Technology in Australia recently conducted a study in April regarding who is most susceptible to crypto addiction and which personalities should pay special attention to their mental health while trading.
Those who are prone to crypto addiction are people who love gambling and don’t really trust authorities. A strong desire to have nothing to do with the state makes such people turn to cryptocurrency.
People who like to deceive and manipulate others for the sake of their own interests, such as cynical and prudent people, are also prone to a crypto addiction.
Narcissists are also susceptible to crypto addiction. Such individuals are usually incredibly confident and, therefore, prone to risky investments. At the same time, they prefer to focus on the positive side of life, believe in their bright future and think that nothing bad can happen to them. This unshakable self-confidence is what drives narcissists to take risks and buy cryptocurrencies.
People with a high level of psychopathy are characterized by heartlessness, low emotional intelligence and a lack of empathy. Such people usually have reduced emotional reactions, which makes them resistant to stress and anxiety, so they probably like risk. In addition, psychopaths are impulsive. This quality, combined with a propensity for risky behavior, makes them prone to risky trading behavior. They are afraid of afraid missing out on the benefits that others might receive.
Sadists also like to invest in Bitcoin (BTC) because, like psychopaths, they don’t want to miss out on potential reward. For them, the pleasure of someone else’s pain is associated with a sense of superiority over others. At the same time, both psychopaths and sadists, unlike narcissists, have no illusions about their prospects, which is reflected in their passion for cryptocurrency.
Of course, not every crypto investor is mentally disturbed. However, most people don’t develop an addiction to trading digital assets. It is worth remembering that when starting to trade cryptocurrencies, one must take into account all the facts that can affect one’s health and well-being. To limit the psychological impact of cryptocurrency stress, it is important for investors to decide how much they can afford to risk.
According to Sergey Miheev, product manager from investment platform United Traders, investors shouldn’t focus only on the cryptocurrencies themselves:
“First of all, stop perceiving crypto only as a trading instrument, unless you’re a professional daytrader with many years of experience. If you are an investor, it is better to understand how price is created and why it changes, the value of a certain coin and market behavior patterns. Then, you get a bigger picture. One way or another, you realize that a crypto is a developing industry, which means that the best strategy is simply buy and hold. Remember that time is on your side.”