Why crypto doesn’t just inspire investors, but also fans

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June 28 2021
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The hype around crypto is getting harder and harder to ignore.

The excitement around cryptocurrencies like bitcoin has often been likened to that of a cult.

In recent years, it’s even been called exactly that by veterans in the financial services world.

Back in May 2021, Nobel Prize-winning economist Paul Krugman said that bitcoin was “a cult that can survive indefinitely”.

As fervent calls to “hold on for dear life” (HODL) echo through social media networks, it’s hard not to ask whether cryptocurrencies like bitcoin are inspiring investors so much as they are fans.

Speaking to nestegg, RMIT’s Angel Zhong suggested that “the social media sentiment and the associated social trading inspire the surge in trading in crypto”.

“What I have observed is that, while in the sharemarket, investors look into the fundamentals of companies that they invest in, equivalent research is not conducted before investing in crypto,” Ms Zhong said.

Asked whether there’s something unique to the way in which cryptocurrencies inspire certain economic behaviours versus other assets like shares or property, Macquarie University’s Maroš Servátka told nestegg that “people do not purchase cryptocurrency because of consumption”.

According to him, “Many do it because of the speculative motive, but there are people who are true believers as well. They purchase the asset and hold onto it for a long time as well.”

“I don’t want to call it fanaticism or anything like that, but you are a fan of something.”

Mr Servátka said cryptocurrencies like bitcoin are “one of the most volatile assets that there is”, noting that a single day of trading can see the price of bitcoin swing 10 per cent in one direction, followed by 15 per cent in another.

“We don’t see these kinds of swings with other currencies. We don’t see the value of assets drop in other markets,” he said.

Mr Servátka’s take is that where investors in assets like property and shares have two potential motives, crypto investors have just one.

In addition to their market value, Mr Servátka noted that non-crypto “assets that people buy generate some sort of stream of income. They have a fundamental value.”.

“Bitcoin doesn’t really have this. There is no stream of income associated with it.”

“It’s purely speculative motive,” Mr Servátka said.

He says that, as opposed to the similar speculation that occurs in the sharemarkets, cryptocurrencies have been boosted by a number of other factors.

These include the growth of new and younger retail investors jumping into the market, to the rise of app-based platforms that lower the transaction cost of purchasing assets.

“That part of investing has always been there, but what has become possible is the exchange of information – people talk more, which fuels more trading,” he said.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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