The Psychology Behind Meme Coins: Why Do People Invest?
The meteoric rise of cryptocurrencies including meme coins such as Pepe and Floki has disrupted the financial industry. From Elon Musk to Lebron James, the pool of high-net-worth individuals pushing interest in investing in crypto is growing.
In spite of the fact that meme coins, in particular, have no inherent value except social clout, millions of people have poured their savings into them. Sure, these coins have massive followings but does this guarantee long-term success?
This seemingly absurd investment behavior has piqued the curiosity of many investment professionals who want to know just what is the psychology behind meme coins that keeps people investing.
That’s what we’re going to find out in this article.
The Fear of Missing Out (FOMO)
The term FOMO was coined by angel investor Patrick J. McGinnis back in 2004. McGinnis came up with the acronym after observing a concerning trend on recently developed social networking sites.
However, the fear of potentially missing out on a lucrative opportunity predates the Internet. It seems innate in human beings. It is not a phenomenon unique to our times. Think back to the Californian gold rush of the 19th century.
Today, social media platforms play a pivotal role in heightening the idea that you could be losing out if you don’t make an investment right now. This in turn has caused many people to commit to poorly thought-through investment decisions.
The Addictive Gambling Thrill
The Internet has created more millionaires and billionaires than at any other time in human history.
Source: Statista.com
Meme coins, much like other cryptocurrencies, have not been immune to over-sensationalism. The promises of quick riches with minimal investment provide a euphoric thrill and excitement akin to gambling.
This invariably triggers the mesolimbic system, also known as the brain’s reward system, causing it to produce the feel-good hormone dopamine. Before long, you find yourself taking chances you wouldn’t normally even think about.
The Bandwagon Effect
The American Psychological Association defines the term bandwagon effect as, “The tendency for people in social and sometimes political situations to align themselves with the majority opinion and do or believe things many other people appear to be doing or believing the same.”
This psychological phenomenon has been referred to as a group or herd behavior. Coupled with FOMO, the bandwagon effect tricks people into having a false sense of security. Social validation becomes a stumbling psychological bias that silences objections to the obvious risks.
The Attraction of Memes
Shared interests and humor are two of the motivations that power internet subcultures. The sense of collectiveness and belonging created by these communities has a psychological impact on us.
No major mental shifts were needed to re-direct meme-driven communities into meme coin enthusiasts and investors. The shared identity was ripe for exploitation.
The Bottom Line
Ongoing research into evaluating the mental, emotional, and behavioral characteristics of those who invest in meme coins has so far demonstrated that major contributing factors include social influence, the excitement of risk, a strong sense of shared identity, and biases like the bandwagon effect and FOMO.
Having a good understanding on these psychological motives can give individuals a better grasp of themselves and so help them re-evaluate their investment decisions.