Like a portrait that captures the essence, markets show what those who participate in them think, feel and do. Because of this, the markets keep changing, following the rhythm of what is happening inside and outside, such as money, news, politics, crisis, etc.
But markets are not always true to reality. Sometimes markets get carried away by contagious emotions like joy, greed or fear that can inflate or crash their prices. These emotions are based on the fantasy that what happens today will always happen, forcing investors to buy or sell without thinking and forgetting what it’s really worth.
Therefore, psychology is very important in understanding the markets and investors must take care of their mind and heart to avoid falling into mental or emotional traps.
What causes markets to go up and down? What emotions drive investors? What cycles repeat themselves in financial history? These are some of the questions asked by Sir John Templeton, an investment genius who knew how to take advantage of the opportunities the world offered him.
“Bull markets are born in pessimism, grow in skepticism, mature in optimism and die in euphoria.”
This quote of his sums up the wisdom he gained during his successful career that began in the Great Depression and ended as one of the pioneers of global investing. His phrase invites us to think about human nature and its effect on markets.
In other words, market prices aren’t just lines that go up and down and show how values change over time. They are also an emotional curve that expresses what investors feel and expect.
Markets are like a game of expectations. When the price rises, it creates an illusion of prosperity that attracts more players. This game is based on confidence and prophecy.
The price starts to rise. The rise in price gives confidence to those who believe in the game. Those who previously doubted are joining the game. More people participate in the game, which increases the price. The growth of the price confirms the belief in the game. The atmosphere becomes enthusiastic. In extreme cases, enthusiasm turns into delirium, which can create a bubble.
Play creates self-realization. The expectations of the game create the action that fulfills those expectations.
The game can be dangerous because it can create a bubble. When delirium takes over the market, players forget the danger and make irrational decisions.
Gaming expectations are a key driver of price behavior. The game can push the price up, but also create a bubble. It is important to be aware of the dangers and make rational decisions based on analysis and not emotions.
Bitcoin Euphoria on a Roller Coaster: Peak or Cliff?
In the fast-paced world of cryptocurrencies, Bitcoin reigns as the most exciting roller coaster. Driven by euphoria and speculation, its price experienced dizzying ups and downs, creating a fascinating paradox: the greater the optimism, the closer the abyss.
Intoxication from output:
When the price of Bitcoin starts to rise, investors become euphoric. Online forums are full of bullish predictions and the trade press heralds a new financial dawn. Social validation becomes a drug, fueling optimism and attracting new buyers.
The illusion of liquidity:
However, this euphoria has a dark side. As the price increases, the amount of money available to continue buying decreases. Investors who have already purchased bitcoins have less capital to invest, and new investors find themselves with a higher price that limits their purchasing power.
Paradox of waning optimism:
Here a paradox arises: optimism is greater when less capital is available to purchase. A self-fulfilling prophecy becomes reality: a rising price attracts more investors, which in turn causes the price to rise further, creating a bubble that sooner or later bursts.
Sirens’ song:
In this context, euphoria becomes a siren song, luring investors to a potential crash. Ignoring the risks and inherent volatility of Bitcoin, many embark on this financial adventure without proper preparation.
Wisdom of measure:
To navigate these rough seas successfully, you must be aware of the risks and act wisely. Diversifying your investments, setting a long-term plan and avoiding impulsive decisions are the keys to not falling victim to euphoria and its consequences.
The Bitcoin roller coaster will not stop. The future of this cryptocurrency is uncertain and its price will continue to fluctuate. Wisdom lies in not getting carried away by the euphoria of the moment and making responsible decisions based on objective analysis and sound financial planning.
Remember: the paradox of optimism in the bitcoin market is a warning: the top of the roller coaster can also be the beginning of the fall. Invest carefully, with a cool mind and a moderate heart.
The Bitcoin market is volatile and changing. Sometimes the price rises sharply, driven by investor optimism. Optimism can be rational when based on facts and analysis, but it can also be irrational when based on emotion and rumour. Expectations are important and affect price, but their power has limits. You can’t climb endlessly, or ignore risks and obstacles.
Euphoria is not always the beginning of the end. Sometimes the price continues to rise, surpassing the most optimistic predictions. The euphoria can last longer than expected, fueled by the contagious effect and the fear of missing out. However, the euphoria ends sooner or later. Contrary to most expectations, the price drops sharply and causes a shock. Investors get spooked, sell, and the cycle repeats.
Bitcoin is a fascinating adventure, but also a roller coaster. You have to be prepared for the best and the worst and not get carried away by blind optimism or irrational panic.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information provided here should not be taken as financial advice or investment recommendations. All investments and trading moves involve risk and it is the responsibility of each person to do their due diligence before making any investment decision.
