Even if investing is not your cup of tea, you have probably heard of Bitcoin (the first and most popular cryptocurrency) or, more generally, the term cryptocurrency (often referred to simply as “crypto”). You may have heard or read about crypto in the news, or a friend or colleague passionately yammer about their crypto investments (perhaps for an uncomfortably long time…). In this post, I explain what cryptocurrency is in layman’s terms and the psychology behind why people obsess over crypto.
Cryptocurrency is a digital asset designed to be an investment with the possibility of also being used as a medium of exchange. In other words, crypto is primarily used as an investment similar to how you can buy stock in a company (like buying and selling shares of Coca-Cola). You buy shares of the coin (e.g., Bitcoin) and hope the value of the asset increases over time. In most cases, crypto can also be transferred to other people and, in some cases, used to make purchases. AT&T, Microsoft, and even Burger King all accept bitcoin as a form of payment to make purchases.
Crypto can be desirable as a medium of exchange because it is extremely secure due to blockchain technology and faster than wiring money through a traditional bank, which often takes several business days. Now that we’re on the same page, let’s talk about four reasons crypto can be so attractive.
1. Cryptocurrencies are extremely volatile.
The old saying in investing, “high risk, high reward,” has never been more true than it is for crypto. If you buy $100 worth of bitcoin at breakfast, it can become worth $1,000 by lunch and worth $10 by dinner. An apt metaphor to explain the volatility of investing in crypto is spending an entire day gambling at the blackjack table in Vegas. Because of this volatility, people who invest in crypto often experience an obsession with checking their coins–checking if they went up or down in value every day or even every hour.
If you have an obsessive/addictive personality or ADHD, investing in crypto can feed your addiction. A friend of mine became so preoccupied with his crypto that he changed the face of his Apple watch to show the value of his crypto investments!
2. Cryptocurrencies can make you rich quickly.
As opposed to safe and steady investments like bonds, where you are basically guaranteed to make a small amount of money over a decade, crypto allows for the possibility of you getting rich now if you get lucky and time the market right. The concept of becoming rich very quickly without putting in any effort is extremely attractive to risk-takers, and this taps into the psychology behind the attraction to crypto.
The kind of people who love to gamble and play the lottery are the exact kind of personalities who are attracted to crypto for the same underlying reason: it allows you the possibility to earn massive amounts of money fast, with no effort, if you’re lucky. While older generations may prefer taking a shot at winning big at the slot machine or hitting the jackpot at the lotto, younger generations with this same mindset are opting for investing in crypto to “win big.”
3. Cryptocurrency is a technological innovation that attracts visionaries.
Bitcoin, the first cryptocurrency coin invented in 2009, was a huge technological innovation. It relies on blockchain technology, which is essentially a network of high-powered computers that process and check each and every bitcoin transaction meticulously. The technology affords speed and accuracy to users in a way that outperforms digital transactions made by major banks and financial institutions, which often take several business days to process and are actually subject to higher rates of fraud than Bitcoin transactions.
Since Bitcoin, thousands of new coins have been invented that are all slightly different from each other. The technology behind these coins is exciting and often outpaces that of old-school banks and financial institutions, which can be an attractive feature for visionaries and people who love technology. By investing in crypto, you can become a part of this new technology, which can be thrilling for visionary thinkers.
4. The power of success stories.
People love stories. If you are someone with friends who invest in crypto or you simply go online to search, you will probably hear a story about someone who became a millionaire by investing in crypto. These stories are extremely powerful from a psychological perspective, causing us to think, “if they could become a millionaire by buying some silly digital coin, why can’t I?”
Hearing about the successes of others from a personal narrative can make it feel like we are missing out, similar to how you would be more likely to go gamble at the casino after a friend tells you they won $100,000 at the casino last weekend. Personal success stories are among the most powerful drivers of behavior–the catch here is that people love to share their success stories while hiding their failures, which creates the false illusion that everyone is getting rich who buys crypto.
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Cryptocurrency appears to be here to stay, and I’m excited to see what the future holds. Investing in crypto is certainly not for everyone (I personally don’t have any crypto), but I hope this post has offered you an insight into why some people invest in crypto and obsess over it.