Crypto Investing Mindset: The Psychology of Volatile Markets

Last modified: June 16th, 2023

By Justin Rogers

An unlit glass light bulb resting on its side in front of an unfocused set of lights that are in the shape of an upwards beam.

To get into the crypto investing mindset, we have to understand that the markets are going to cause emotion. The most important part is figuring out what you plan to do with this emotion. Crypto market psychology is how others think and feel when interacting with the markets. The psychology of the crypto markets is always changing because humans are naturally full of emotions. Crypto, being a risky asset and relatively new, is naturally going to be higher in emotion than regular markets.

Before entering the crypto there are a few things you should learn and use to your advantage about crypto market psychology:

  1. Psychology of a Market Cycle
  2. Investing Psychology
  3. Trading Psychology
A dark wooden board on a dark wooden wall with letters in white pushed into the center of the board spelling out emotions.

Psychology of a Market Cycle

Since the dawn of investing in cryptocurrencies with the creation of Bitcoin, people have been buying and selling crypto in an attempt to make money. Whenever there is money involved, there is emotion. The markets flow in the form of cycles. No matter what time frame and what efficient assets you try to invest in, you look at them and you can see them. Crypto markets continue to go up and down as time goes on. While attempting to make a profit in crypto, you will see high points and low points. Then if you zoom out, you will see some more, and again until you can finally see the bull run and bear run cycles. This is the largest form that is noticeable since the increasing attention that crypto has gotten also plays a role in the changing of price.

The bull and bear markets have two different crypto investing mindsets as well. When prices are going up, people tend to be greedy. When prices are going down, people tend to be fearful. It takes a level of crypto market discipline to be able to invest in bear markets and bull markets together. Not taking breaks means that you have to master both market conditions and your wallet does not get a break. Volatile markets like crypto can put a lot of strain on your body if you are nonstop investing, so it is important to take care of your mental health and make sure you are taking care of yourself outside of work.

During the crypto bull market, the beginning is rarely noticed by investors because they are so convinced that markets are slow due to being in a bear market for so long. When things do take off, they take off. This is because of a concept called the fear of missing out or FOMO. The psychology of fear of missing out in crypto investing is built upon when people are afraid of missing a big movement like the next bull run. They will blindly jump into the markets hoping to catch profit. This is extremely dangerous because when they show this much crypto market greed because the market can flip on them and start to fall right after they buy. Those who buy out of emotion will always buy at the top of the market right before it starts a downtrend.

As the market falls people begin panic selling, crashing markets further into a bear market. Emotions are peaking and one of the best ways to determine how to avoid making emotional decisions in crypto investing and losing money in these market conditions is to just stay out of it. Finally, people accept their losses and either fully sell or just leave their money in. People lose hope in the markets and stop putting more money in. Price remains with little action until another big movement comes along, starting the cycle all over again.

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Investing Psychology

Now that we know how the market flows up and down, we can begin to take advantage of its movements for profit. Crypto investing, which is the use of data to find trends in the market for profit, is the next level after understanding how the market works. Now that we are ready for the next level, we have to look into the next level of mindsets as well. Crypto investing psychology is the mindset you are going to have to recognize to be successful when investing in the crypto markets. To get started, crypto investors find trends and structure them inside of a crypto investing system. This system will then provide signals of when to buy and sell based on market data.

The importance of discipline and patience in crypto investing should be very well valued as the entire goal is not to make the most amount of money, it is to make the most amount of money from knowing exactly where the market is moving based on data. Investors do not make money based on luck or from jumping into trends based on emotion. Crypto investors are masters of how to avoid making emotional decisions in crypto and make money from other peoples’ mistakes with their systems by knowing the ins and outs of the psychology of investing in crypto markets.

Since emotional investing is still common, even with investing systems, investors have to make their systems robust. A robust investing system has less chance of providing false signals and creates a crypto market patience that might not have been there otherwise. This puts the importance of patience in crypto investing extremely high so that you can protect yourself when there are times when the market makes amazing moves and you miss out on the opportunities, sometimes the data does not catch everything. This does not mean panic and buying trying to squeeze out some extra profit. Crypto market risk management shows us that it is better to stay out of the market without profits or losses than jump into the market with the chance of great losses because you wanted to try and rescue a little bit of profit.

Sometime in your crypto market long-term investing career, the chances are that you will undergo a concept called crypto market arbitrage. This is when your data is saying that the market will do one thing, and it ends up doing the opposite. When this happens, your first thought may be to sell everything immediately. Selling too soon is the easiest way to toss out profit by not listening to your investing system. If your system is robust enough, it will tell you when to sell. There is no reason you should be jumping to sell your position if the market begins to fall a little because you never know if it may recover. However, if your investing system does tell you to sell for a loss, to maintain your positivity and not get trapped in crypto investing psychology, you must understand that everyone goes through losses, even the best, and realize the importance of long-term thinking in crypto investing.

An Apple iPhone showing a crypto trading candle chart that is going up and down placed in top of a pile of money and coins.

Trading Psychology

If fully using data to your advantage is not your style of making a profit then there is another form of mindset to study. Crypto trading psychology is the thinking of those who use data and price charts to determine where the market will go in short periods. Since the timeframe for interacting with the market is much less, there are even more emotions involved. While trading cryptocurrency you will feel your emotions attempting to take over.

Just like investing, you have to stick to your system. A trading system is a set of rules that you plan to follow while interacting with the market. These rules are not as strict as investing because many of them are identifying patterns that you believe could be profitable. With this subjective rule set, you are going to make more mistakes. These mistakes are going to trigger emotions, pushing you to your limits of self-control. In trading, crypto market risk management is all about how you manage your emotions.

When losses are piling up on traders they will want to either quit or forcefully make their money back. Forcefully getting their money back will in most cases end in emotional trading where they will just lose all the rest of their money. Getting put in the gambler's fallacy or the monte carlo fallacy can also be a tricky one to avoid. This fallacy is strong because after going on a winning streak, you may feel that your chance of winning is higher than usual. You feel great about your past wins and can’t wait for your next one, blinding you from the reality that your odds are still the same as usual and you need to be just as careful.

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Final Words

How to develop emotional intelligence for crypto investing?

Crypto investing psychology can help explain how the majority of investors feel in the markets. To develop emotional intelligence, you can think about what is happening to others and recognize if anything similar is happening to yourself.

What to avoid emotional investing in volatile markets?

The best way to avoid emotional investing in volatile markets is by understanding which emotions are being triggered and why. Then stick to your systems put in place so that you can prevent them.

How can FOMO ruin my profits?

FOMO can make you feel like you have to catch every single movement that happens in the market. If you were to attempt this, most of the time you are going to just end up in loss because no one can catch everything. If you are going to buy crypto, make sure you have a reason other than emotion.



The information provided in this article is not investment advice. We are not responsible for any losses incurred by readers who choose to invest in cryptocurrency. Readers should do their own research before investing in cryptocurrency. Cryptocurrency is a volatile asset and there is a high risk of loss. Readers should only invest money that they can afford to lose.

Desire to be a better Investor?

Are you ready to start implementing scientifically proven methods into your crypto investing?

Desire to be a better Investor?

Are you ready to start implementing scientifically proven methods into your crypto investing?

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