Doubling Down as Bitcoin Plunges is a ‘Problematic Mindset,” Says Personal Finance Author
As the price of Bitcoin continues to fall, many investors are doubling down and sticking with their decisions, which is a sign of a ‘problematic mindset’ that leads to more loss, Business Insider India reported on November 21, 2018.
Identity Crisis Strikes Investors
Despite the hard hits cryptocurrencies have taken recently, particularly bitcoin, many traders are refusing to let go of their investments despite the market telling them to do so.
According to Ramit Sethi, author of the “I Will Teach You to Be Rich” blog, the reason why cryptocurrency investors are reluctant to admit they were wrong about their trades is mostly that a large percentage of them have built their identity around the investments.
Back in August 2018, a CNBC report explored the issue, citing multiple examples of people losing most of their life savings on crypto investments. Coinbase, the largest cryptocurrency brokerage in the United States, doubled its number of customers between October 2017 and March 2018, which means that many of those who have lost money had gotten into the markets before the big run-up in December 2017.
While the focus of the report was to shine a light on how crypto investments have affected the lives of ordinary people, it did provide a valuable insight into why most of them lost their investments. A large percentage of investors didn’t treat cryptocurrencies as any other investment – instead, it became a part of their identity, Sethi wrote for Business Insider India.
No Positive Impact from “Doubling Down”
According to Sethi, many investors refuse to step down and are ready to take on tremendous losses are because of the beliefs and values they have. He explained that a lot of decisions regarding money come from beliefs that are so deeply ingrained in society that they guide people’s attitudes and behavior.
“If you don’t realize they’re there, they can become dangerous and lead you down paths you didn’t necessarily even want to follow just because you thought you must,” Sethi said.
And while one could argue whether or not this simplified rhetoric is enough to explain the decisions people investing in crypto have made, it provides an interesting insight into the minds of those willing to suffer losses in the current bearish market.
Sticking to investments and refusing to sell off even if all evidence points to the opposite might have an immediate stabilizing impact on the market, but the psychology behind it could have a negative effect in the long run.
Focusing such a large portion of one’s identity solely on cryptocurrencies makes maintaining an objective perspective nearly impossible, which leads to future decisions being guided by emotions, rather than careful deliberating.