Crypto-trading already has a mixed reputation. Thanks largely to the volatility of cryptocurrency markets, it's attracted more than its fair share of unflattering attention, with economists likening the bitcoin boom to a classic bubble.
However, the 'wild' fluctuations of bitcoin et al. have repercussions and consequences that go beyond their unpredictability and riskiness, and that have more of a psychological and socioeconomic aspect than a strictly financial one. A growing body of evidence is indicating that, in rising up and falling down so frequently, they tend to make crypto-trading noticeably more addictive and dysfunctional than other forms of trading.
And yet, in the face of such increased instability, crypto communities have developed a number of coping strategies that tend to make the buying and selling of digital currencies noticeably less toxic.
Dysfunctional markets = dysfunctional behavior
The most vivid illustration of crypto-trading's addictive and harmful nature came with an announcement that it would have an addiction treatment centre opened in its honor in Castle Craig Hospital, Scotland.
What’s interesting about this announcement is that the therapists at Castle Craig have recognised that much of the addictive quality of crypto-trading stems from the quasi-randomness of crypto markets. Chris Burn – a therapist at the hospital – explained in a blog post, “the high risk, fluctuating cryptocurrency market appeals to the problem gambler. It provides excitement and an escape from reality."
In other words, crypto-trading can be psychologically hazardous because of the way the cryptocurrency market behaves and is structured, with articles published by self-help blogs recognizing this at least as early as January.
Generations, unemployment and economics
Given this danger, it's disconcerting to note that supposedly 8% of the American adult population, for instance, own some kind of cryptocurrency. The survey in which this figure was produced – published by consumer website Finder.com – also discovered that certain demographics are more inclined to trade than others, and this is precisely where the crypto-addiction story becomes more sociologically interesting.
For instance, the survey finds that cryptocurrencies are more likely to be traded by millennials than by any other generation, with 17.21% of this generation owning some form of crypto, compared to only 8.75% for Generation Xers and 2.24% for baby boomers. This finding is backed up by results from other recent surveys, in America once again and beyond (e.g. South Korea).
Speaking to Cryptonews.com about this trend, eToro, a social trading platform, analyst Mati Greenspan explains that cryptocurrencies are very much a generational phenomenon.
"Every generation has had their emerging asset class of choice," he says. "The Boomers were attracted to gold, Gen X traded in stocks, and for millennials, it seems very likely that this generation will lean towards digital assets, including bitcoin and cryptocurrencies."
Yet the deeper significance of the association between millennials and cryptocurrencies – and its effect on market volatility and addictiveness – is brought out by eToro itself in another survey. It discovered that holders of crypto are much more likely to be "novice" rather than "intermediate" or "advanced" traders (over 75% were described as such). What's more, traders are more likely to be either students or unemployed than to belong to a particular employment category.
Put differently, the post-recession financial climate has driven certain vulnerable demographics towards cryptocurrency trading. Given their inexperience and precarious finances they’ve traded in a way that has arguably helped to make crypto more volatile and also more addictive, as suggested by a Warwick Business School study that found bitcoin value fluctuations to be driven more by emotion and mood than anything else.
HODL on
This is all paints a discouraging picture for many would-be traders. However, hardened crypto investors have evolved a number of modest tactics for avoiding much of the panic, irrationality and volatility of trading.
"As with any market, the strategies that prevail are usually more long-term ones," Greenspan explains. "This is precisely why the crypto community has coined the term HODL, which refers to keeping your cool and holding on to your coins, even in the face of volatility."
HODL also teams up with the concept of FUD (fear, uncertainty and doubt) as a means of discouraging not only panic, but of an approach to crypto-trading that regards it as a get-rich-quick scheme. As the recent movements of the market have shown, it's clearly not such a scheme for 99% of its participants, and the sooner we all realise this the better, for our mental health as much as for our pockets.
