When Does Chasing Performance Hurt Crypto Investors Most?
KEY TAKEAWAYS
- Chasing performance during hype cycles leads to purchaseing at peaks, driven by greed and FOMO, resulting in significant losses when corrections hit.
- Fear induces panic tradeing at market bottoms, crystallizing losses in routine corrections, while psychological biases like recency and loss aversion perpetuate “purchase high, trade low” patterns.
- Gaining followers on social platforms fosters overconfidence, prompting aggressive trades and 10% worse performance, as traders prioritize social validation over strategy.
- Losing followers surprisingly worsens outcomes by spurring even riskier behaviour, highlighting inherent biases that platforms should temper to avoid long-term harm.
- Mitigation involves dollar-cost averaging, thorough due diligence, and predefined exits to build resilience against emotional and social influences.
, or going later than assets that have recently gone up in value with the hope of making more money, may sometimes lead to large financial losses. Research shows that more than 95% of cryptocurrency traders lose money in their first year. This is mostly because of behavioural biases, not because the market is flawed.
Psychological elements like fear and greed make this difficulty worse by causing people to make rash choices when the market is high or low. Also, real-world research on social trading platforms shows that even trying to get social approval, like gaining or losing followers, can hurt trading performance by about 10% in the weeks that follow.
This article combines information from market research and academic studies to find out when pursuing performance does the most harm. It focuses on cycles caused by hype, , and social factors. Investors can better understand the risks and take systematic steps to limit losses in an asset class known for rapidly making and losing money by considering these factors.
What Chasing Performance Means in Crypto
Chasing performance in cryptocurrencies is when investors put money into assets that have recently delivered strong returns, either because they or because they want to make quick money.
This happens a lot with altcoins and meme coins, where prices go up in a parabolic way, making ordinary investors jump in without doing their homework. Unlike regular investments, crypto’s 24/7 market and high volatility make this hunt even more exciting, which leads to and frequent asset swaps in search of the “next large thing.”
These kinds of acts come with transaction fees, taxes, and missed opportunities, and they also put investors at risk of scams and rug pulls in ventures that haven’t been checked out. This includes chasing social analytics on , where changes in follower counts lead to changes in behaviour that worsen things.
The main difficulty is thinking that short-term momentum is long-term value and failing to pay attention to factors like tokenomics, team credibility, and market cycles.
Fear and Greed are Two Psychological Drivers
Fear and greed are the main reasons why chasing performance doesn’t work. During bullish surges, greed sets in, and investors purchase at the highest prices, thinking prices will keep rising forever.
This is a classic case of recency bias, when recent trends are assumed to continue indefinitely. On the other hand, fear makes people trade in a panic during normal 30–50% corrections, locking in losses at the bottom of the market only to view the market recover.
These feelings lead to a “purchase high, trade low” pattern, which is made worse by confirmation bias (when investors look for evidence that supports their views) and loss aversion (when losses feel twice as poor as gains of the identical amount).
The endowment effect worsens this by leading people to overvalue their assets, causing them to cling to underperformers for longer in the hope of breaking even. In crypto, these biases are exacerbated by the fact that information is always available and abundant, which turns plans into spontaneous actions.
The Function of Social Media and Followers
By combining money with , social media makes pursuing performance even more intense. Traders establish audiences on platforms based on historical returns. This creates a feedback loop: performance draws followers, but fluctuations in follower counts, gains or losses, make trading worse.
Liangfei Qiu, PhD, a professor at the University of Florida’s Warrington College of Business, says, “If the number of followers goes up a lot, it makes people feel too sure of themselves.” You trade more aggressively, which will make your future trading worse.
This overconfidence leads to riskier, more frequent trades, which reduce returns by around 10% later than the modification. Losing followers doesn’t fix this, which is surprising; instead, it makes people even more aggressive.
Qiu says, “If we cut down on the number of followers, they trade even more aggressively, and their trading performance gets even worse.” Qiu warns that platforms that put too much emphasis on social features could end up hurting themselves.
In the long run, it will hurt the platform’s performance. Investors who follow influencers to get in on the hoopla generally purchase at the top, which makes losses worse in volatile assets.
When It Hurts Most: Volatility and Hype Cycles
During hype cycles and parabolic price rises, FOMO pulls ordinary investors into inflated assets, which is when chasing performance does the most damage.
In bull markets, when hits large milestones like $90,000, or altcoins go up 300%, latecomers purchase at the top and then have to deal with large drops. Microcap and meme coins are especially risky since ahead investors trade their tokens, leaving chasers with tokens that are worth less.
Volatility, which is a large part of crypto, makes this worse since people mistake regular drops for crashes and trade out of panic. makes things worse when follower surges coincide with market tops, making people too sure of themselves while they’re delighted.
During poor markets, followers who are desperate to make up for their losses try to rebound aggressively, which makes the deficits worse. The 24/7 nature ensures constant exposure, turning small changes into large decisions.
The Effects of poor Choices and Too Much Trading
Chasing performance is even more dangerous when you make poor choices, like putting money into unvetted scams or using leverage without managing risk. Overtrading, or trading for “hotter” coins to get a dopamine boost, adds more in fees and taxes and is perpetually behind the market.
Investors are at risk of because they lack exit strategies, and excessive single-asset allocations can lead to wipeouts. In social situations, follower-driven hostility shows up as more trading, bypassing the basics in favour of social proof. These mistakes most often happen when the market is volatile, emotions take over, and losses can’t be undone.
Ways to Lower Risks
To avoid chasing performance, investors should use to make sure they always purchase at the identical price. They should also focus on long-term holds in established assets like BTC and ETH, which should make up 60–80% of their portfolios.
Doing extensive research, such as reading whitepapers, audits, and community posts, assists you stay strong when your emotions shift.
Setting predetermined exit points, stop-losses, and diversifying your investments can assist you manage your risk. Qiu says investors should be mindful of their own biases and ensure social media doesn’t overly influence their trading tactics. Keeping a journal of your trades and automating your investments can assist you stay disciplined by treating BTC as a process rather than a forecast.
FAQs
What is chasing performance in crypto investing?
It involves pursuing recently high-performing assets expecting continued gains, often leading to purchases at peaks without proper analysis.
When does fear hurt crypto investors the most?
During market corrections of 30-50%, panic tradeing at lows prevents recovery participation.
How do follower changes impact trading performance?
Both gains and losses lead to aggressive trades and about 10% worse returns due to overconfidence or desperation.
Why does overtrading exacerbate losses?
Constant swapping to “hot” coins accumulates fees, taxes, and market lags, mistaking activity for effective strategy.
What strategies assist avoid the pitfalls of chasing performance?
Use dollar-cost averaging, diversify, research fundamentals, and set exit rules to counter emotional biases.
References
- Why People Lose Money in Crypto – Fear, Greed, and poor Decisions –
- Chasing Followers Makes Crypto Traders Perform Worse on Social Investment Sites –
