Last week, the Securities and Exchange Commission (SEC) made two allegations against major cryptocurrency platforms Binance and Coinbase, accusing Coinbase of engaging in illicit securities trading in the United States. This represents a significant escalation in the SEC’s efforts to regulate the cryptocurrency industry, which has operated in a regulatory gray area for quite some time. As a result of these allegations, Coinbase’s stock plummeted over 12% on June 6th, while Binance witnessed investors withdrawing nearly $800 million from its platform within the same timeframe.
These legal actions are likely to lead to lengthy litigation processes that could take months, or even years, to resolve. Consequently, American investors who have faith in digital assets find themselves in a state of uncertainty. The pressing question remains: Is there a secure place to trade cryptocurrencies?
The straightforward answer, at least for now, is likely no. According to Bloomberg columnist Matt Levine, it is a reasonable assumption that “all cryptocurrency exchanges are doing crimes, and if you’re fortunate, your exchange is committing only procedural offenses.”
Despite the ongoing volatility and uncertainty surrounding cryptocurrencies, many individuals are still captivated by and committed to investing in them. But why?
A significant amount of money has been made in the cryptocurrency market, but there have also been substantial losses. In a world that has faced and continues to face immense challenges, the allure of potential big wins takes on even greater importance.
Before we delve further, it’s important to note that I am not a wealth advisor or investment professional. Therefore, I’m not offering an opinion on whether investing in cryptocurrencies is a good idea or not. Instead, as a behaviorist and facilitator of adult development, I’d like to share some reasons why a significant number of people are drawn to high-risk investments like cryptocurrencies, despite the odds being uncertain.
Excitement and hope:
After enduring the devastating effects of the COVID pandemic and the longest Bear market since 1948, people are hungry for positivity and a potential solution that could change their future. Many individuals, including baby boomers and younger generations burdened with debt, are searching for financial stability and solutions to their challenges. In such circumstances, individuals are more likely to make emotionally-driven decisions rather than relying on logic and sound guidance.
Social influence:
The phenomenon of herd mentality plays a significant role in shaping human behavior. People tend to adopt the beliefs, behaviors, and attitudes of the majority within a group, sometimes sacrificing their critical thinking and individuality. This influence is even more pronounced through social media, where trends and popular opinions are amplified. The fear of missing out (FOMO) often prompts individuals to make investment decisions based on less-than-optimal criteria.
The need to belong:
Cryptocurrencies, especially Bitcoin, have become more than just financial assets. They have influenced the formation of a unique subculture and have become part of many individuals’ identities. Bitcoin, in particular, is often seen as a radical movement or countercultural behavior. People crave acceptance and a sense of belonging, and cryptocurrencies offer a way to fulfill that need.
This article is not meant to criticize cryptocurrencies but rather to shed light on the factors that influence people’s decision to invest in high-risk and volatile opportunities. As an example, during the peak of the pandemic, I personally invested a modest amount of money in crypto with my sons. We considered it a fun experiment and were willing to accept the risk involved. While the value of our investment has decreased, we did not rely on it for our retirement plans.
Patti Cotton serves as a thought partner to CEOs and their teams, assisting them in managing complexity and change. She can be reached at [email protected].
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