Insights Into Cryptocurrency Investment Biases
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Psychological Biases in Cryptocurrency Investments
Samson Mow, CEO of Jan3, highlights a significant challenge facing new cryptocurrency investors: psychological biases. Mow warns that many newcomers to the crypto market fall victim to misconceptions, particularly “unit bias,” which leads to poor investment choices based on coin prices instead of actual value.
Understanding the Appeal of ‘Affordable’ Altcoins
Mow explains that inexperienced investors often perceive lower-priced altcoins as better deals compared to Bitcoin. He notes, “Many altcoins exploit unit bias by having a large supply, making it difficult for investors to discern their true value,” Mow tweeted on social media.
To illustrate, he pointed out, “XRP might be priced at $2, while Bitcoin seems expensive at $85,000!” This misperception arises because numerous altcoins have substantially larger supplies than Bitcoin’s finite 21 million coins.
Reframing Prices Through Supply Comparison
Mow devised a hypothetical scenario to demonstrate how cryptocurrency prices would differ if they all had Bitcoin’s limited supply. His calculations suggest that if Ethereum, with its vast supply, were limited to 21 million coins, its price would skyrocket to approximately $9,200, representing an astonishing 278,740% increase from its current valuation. Similarly, XRP would rise 470% to $5,800 per coin, and Solana would surge 2,325% to $3,400.
These figures are derived by dividing the market cap of altcoins by 21 million, aligning their supply with Bitcoin’s. Mow remarked, “Purchasing one 21-millionth of Bitcoin’s supply costs roughly $85,000. What if we eliminate unit bias from altcoins to equate them to 1/21 million?” He concluded that “these altcoins aren’t worth as much as perceived.”
Rising Bitcoin Dominance
Bitcoin’s dominance in the cryptocurrency market has surpassed expectations, reaching approximately 60%, according to TradingView data. This metric, known as “Bitcoin dominance,” measures Bitcoin’s market cap relative to other cryptocurrencies combined.
Following recent market trends and his analysis of unit bias, Mow anticipates that “Bitcoin dominance will rise significantly” beyond current levels, defying earlier predictions that capital would shift from Bitcoin to other cryptocurrencies in late 2024 and early 2025.
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