The effect of house money
According to the concept of the money-in-the-house effect, when investors invest their earnings, they often take on more risk than when they initially invested their savings. Earnings from investments are treated more casually.
This leads us to take on a lot more risk and perhaps invest in something we wouldn’t have initially held onto.
In the crypto markets, the bull cycle has made many people rich, but how many of them have actually taken profits?
Investors tend to risk more as markets rise; so a 50% drop puts them deeper in the red, even though their performance had exceeded 50% at the top of the uptrend.
The echo chamber effect
This is one of the most common effects in the crypto market. This is well illustrated by the LUNA crash. There have been earlier warnings about the unreliability of the system, but if you thought you were a LUNA (Lunatic) supporter and spent all your time in pro-LUNA groups, you may not have been there. so receptive.
The echo chamber effect means that when you are investors in a particular cryptocurrency, you are only looking for good news to his desire.
And if someone or a publication questions your position, you see it badly. Crypto followers use the phrase FUD to designate what challenges their convictions. Yet their FUDs are sometimes relevant!
The hot hand fallacy
According to the hot hand fallacy, there is a tendency to think that a person who has succeeded in a certain endeavor is more likely to succeed in similar endeavors in the future.
When we apply this to cryptocurrenciesit might seem that if you have a streak of success picking tokens that perform well, you will surely be successful with your next pick.
Thus, you risk losing all objectivity in your investments. It is important to realize that your past performance does not affect your future performance: a fundamental principle of investing in the financial markets!
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