herd instinct

Herd instinct is a psychological phenomenon that refers to people’s tendency to follow the crowd or a group in uncertain situations. In the context of the crypto-assets market, this means that investors often make investment decisions based on the actions of others, rather than their own analysis and deliberation.

Why do people follow the herd instinct in the crypto-assets market?

In the crypto-assets market, where the prices of digital currencies can change dramatically in a short period, the herd instinct becomes stronger. People often observe other investors buying or selling specific assets, which creates a sense of uncertainty about their own decisions. As a result, they choose to follow the crowd, believing that others know better or that there is strength in numbers.

Effects of the herd instinct in the crypto-assets market

Following the herd instinct in the crypto-assets market can lead to a phenomenon called herding: when investors collectively start selling assets, causing a sharp drop in prices. This can result in market panic and even larger selling flows. On the other hand, when the crowd starts massively buying certain assets, their price may artificially rise, which also carries the risk of a sudden drop in value.

How to avoid the influence of herd instinct on investment decisions?

To avoid the pitfalls of the herd instinct in the crypto-assets market, it is important to conduct your own analysis and research. Investors should rely on rational deliberations and an investment plan, rather than on emotions and reactions to market movements. Diversification of the investment portfolio and awareness of one’s own risk can also help minimize the negative effects of the herd instinct.

It is worth remembering that the crypto-assets market is dynamic and susceptible to fluctuations, so making investment decisions based on analysis and diligence can help avoid impulsive reactions resulting from the herd instinct.