Nothing has disrupted the financial industry in recent years like the phenomenon of cryptocurrency. Crypto trading is one of the fastest growing markets in the world. There are over 106 million buyers and sellers of cryptocurrency worldwide in 2021.

The price of Bitcoin saw tremendous gains between 2020 and 2021 -- from $9,500 in June 2020 to $58,000 in February 2021. It was not just Bitcoin, but Ethereum (ETH) and other ‘altcoins’ which also increased in value exponentially. So what is driving the frenzy?

The Journal of Behavioral Addictions in a recent study, titled ‘The psychology of cryptocurrency trading: Risk and protective factors,’ identified key drivers that are fuelling the cryptocurrency trading industry.

Similar to the traditional share market, crypto trading also attracts a wide variety of investors, ranging from institutional to small-time amateur investors. But unlike traditional markets, crypto can be traded 24 hours a day, seven days a week on a global scale.

Social media plays a pivotal role in crypto trading as it has the ability to drive investor engagement. Forums like Reddit provide a platform for cryptocurrency-based communities to discuss and speculate every hour of the day. The study also identified a strong FOMO or fear of missing out sentiment, that also played a role in the level of engagement.

The highly volatile market is similar to a casino experience, but amplified due to the 24/7 nature of the crypto trading market. There are no traditional profit margins, quarterly reports or future estimates that can be used for cryptocurrencies, instead the future value is merely speculative.

Warren Buffet has famously spoken against cryptocurrency trading, saying “cryptocurrencies basically have no value” and they are a “gambling device.”

But a lot of industry leaders and investors like Elon Musk and Mark Cuban are part of the frenzy and have considerable influence in the crypto market.

The study also mentions that it is extremely difficult to determine the value of a particular cryptocurrency, which adds to the extreme volatility of the market value.

Another study by NIH found that the behaviour of Bitcoin users tends to fluctuate according to the ups and downs of the market. But the value can rapidly change overnight based on comments on Reddit, or celebrity endorsements or wider acceptance from nations and industries.

There are huge communities with millions of members online on Reddit and also Twitter influencing the value of cryptocurrencies.

It is noteworthy that the study identified the market as riskier for inexperienced and amateur investors driven purely by FOMO and social media trends.

(Edited by : Shoma Bhattacharjee)