Psychological barriers in the cryptocurrency market

Fonseca, Vítor Nuno da Costa Azevedo; Pacheco, Luís Miguel; Lobão, Júlio

doi:10.1108/rbf-03-2019-0041

Cited by 15 publications

(8 citation statements)

References 40 publications

(54 reference statements)

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“…In the past six years, more attention has been paid to motivational factors [43][44][45][46][47][48][49]. In contrast, barriers were not analyzed as much [50][51][52]. Despite this, it can be stated that motivational factors as well as barriers to using cryptocurrency constitute a topic gaining in popularity, and some of the aforementioned articles have been cited by dozens of other authors.…”

Section: Related Literaturementioning

confidence: 99%

Motivations, Barriers and Risk-Taking When Investing in Cryptocurrencies

2021

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The cryptocurrency market is very young, volatile, and highly risky. By the end of 2020, a new bull run started, and the prices of several cryptocurrencies reached record-breaking highs. The factors affecting this rise of cryptocurrencies include the impacts of the COVID-19 pandemic, the economic crisis and the global increase in the inflation rate, as well as the gradual acceptance and adoption of cryptocurrencies by people worldwide. This exploratory research is focused on this last factor, i.e., using cryptocurrency and with it, the associated support of its ecosystem (e.g., mining, staking). A survey was carried out investigating the motivational factors and barriers to investment in cryptocurrency for Czech representatives of Generations Y and Z (18–42 years; n = 468). The geographic scope was nationwide, and quota sampling was used. Notably, this survey was carried out prior to the global COVID-19 pandemic outbreak, and it is thus not affected by the pandemic and its related economic impacts. The article investigates the dependency between the individual motivational factors and barriers from the perspective of the tendency to take risks (using the risk propensity scale), according to gender and representation of Generations Y and Z. The lack of information on this form of investment is considered as the main barrier to investment in cryptocurrency, with respect to sex and generations. Compared to that, a negative experience with investment in cryptocurrency constitutes the most minor barrier. Respondents that have a tendency to take risks are mostly put off by their lack of experience with investment in general. The main motivational factor for investment in cryptocurrency, with respect to sex and generations, is considered to be the speed of increase in cryptocurrency value. On the other hand, the least encouraging factor is the opportunity to use the high volatility of cryptocurrency for speculative trading. Interestingly, this factor mostly encourages respondents that do not have a tendency to take risks. The findings are discussed, along with the presentation of their implications for practice and the directions of further explanatory research.

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Section: Related Literaturementioning

confidence: 99%

Motivations, Barriers and Risk-Taking When Investing in Cryptocurrencies

2021

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“…In this test, hypothesis H0: uniformity in the distribution of M-values is considered, with the alternative hypothesis H1: non-uniformity in the distribution of M-values. Nevertheless, the result of this test is not sufficient to demonstrate the existence of psychological barriers, as previously demonstrated by Ley and Varian (1994) or Fonseca et al (2020) who claim that the numbers found may not be uniformly distributed and that there are still no barriers. Besides, De Ceuster et al (1998) highlight that as the series increases, the intervals between the barriers widen and the distribution of digits and their frequency of occurrence is no longer uniform.…”

Section: Methodsmentioning

confidence: 72%

“…More recently, for cryptocurrencies, Fonseca et al (2020) investigated the existence of psychological barriers (Bitcoin, Dash, NEM and Ripple), being the first to document this fact for the market of cryptocurrencies. They argue that investors in cryptocurrencies are particularly prone to behavioral biases that cause psychological barriers.…”

Section: Psychological Barriersmentioning

confidence: 99%

Psychological barriers in the electric market: study applied to the Nord Pool market

Almeida

Madaleno

Robaina

2020

RBF

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PurposeThis article aims to verify if there are detectable barriers in price levels that are understood to be psychologically important (psychological barriers) in a set of hourly electricity prices. These barriers manifest themselves when the market struggles with a difficulty in crossing the barrier to a different level. Psychological barriers focus on directional price movements around regions of the barrier, thus the importance of understanding investor behavior. The authors intend to contribute empirically to the scarce literature on psychological influences in individuals trading in the energy market, hereby enhancing the knowledge concerning the behavior of investors in this market.Design/methodology/approachThe present work aims to test psychological barriers in the Nord Pool electricity market. Through a sample of hourly data on the Elspot day-ahead market, from 2013 to 2017, three groups of tests were made, following the M-values methodology: (1) uniformity tests, which clearly rejected the uniformity in hourly prices; (2) barrier tests, which included the barrier proximity and barrier hump tests, evidencing psychological barriers and (3) conditional effects tests, which allowed us to conclude in favor of effects of positive returns after approaching a barrier on an upward movement, i.e. the barrier breaches due to the fact that increasing prices tend to lead to further price increases, on average.FindingsUniformity tests, rejected the uniformity in hourly prices; barrier tests, included the barrier proximity and barrier hump tests, evidencing psychological barriers and conditional effects tests, allowed us to conclude in favor of effects of positive returns after approaching a barrier on an upward movement, i.e. the barrier breaches due to the fact that increasing prices tend to lead to further price increases, on average. Another relevant conclusion is that the period from midnight to 9 a.m. is very sensitive, since there is evidence of return and variance effects simultaneously. The implications of these results are potentially relevant, since changes on the variance are usually perceived as a proxy for risk, with changes on the return. It was also concluded that with the increase of the time span from 5 to 10 days on the conditional effects difference tests, there were significant changes on the results, the variance effect is stronger, while the return effect weakens.Research limitations/implicationsHowever, this research presents some limitations that result in representing opportunities for future research. The fact that there are reduced data available for other markets end up limiting the study of the global electricity market. Although Nord Pool is Europe's leading energy market and is seen as one of the most successful energy markets in the world, it would be interesting to do a study with more than one electricity market to make comparative considerations. Although the spot market is the main arena for energy trade, while the intraday market works as a compliment, it would be equally interesting to do a similar study for the intraday market and then compare conclusions. Moreover, in the present study, it was used standard methods in the literature on psychological barriers, but other methods could have been used–for example, those that assume that prices follow the Benford's distribution (Lu and Giles, 2010), which also present a path for future research and opportunity for confirming the robustness of the present results.Practical implicationsWhen the presence of psychological barriers is detected it means that the risk-return relationship becomes weaker around the psychological barrier (round numbers, meaning that electricity traders anchor). Identification of psychological barriers supports the claim that technical analysis strategies based on price support and resistance can be profitable. Therefore, more profitable strategies can be built by traders, but no reconciliation with the efficient market hypothesis (EMH) (provided that in inefficient markets prices should not exhibit any particular pattern). The finding of significant psychological barriers in specific hourly time intervals implies the need to address its practical implications in electricity markets, being so specific, namely, the possibility to earn extraordinarily profits exploiting this anomaly and who wins.Originality/valueThe electricity sector is a determinant sector in economic growth and a factor of development. Herein lies the importance of studying this market, which until now has not occurred in this subject, as far as it was possible to gauge. Are there barriers in the electricity market and should such a presence be taken into account? Investigating the existence of psychological barriers in the electric market becomes relevant, because knowing that investors are psychologically affected by a psychological barrier, can become a useful tool in negotiation, as it can function as another variable in the “equation” which is to trade in a complex market like this. Proving the potential presence of a psychological barrier may lead investors to believe in the idea of levels of resistance or levels of support, affecting their decision-making and price dynamics.

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“…Different studies concluded that price barriers or at least significant deviations from uniformity also exist in other asset classes such as exchange rates (De Grauwe and Decupere, 1992;Mitchell and Izan, 2006), bonds (Burke, 2001), commodities (Aggarwal and Lucey, 2007;Lucey and O'Connor, 2016), derivatives (Schwartz, Van Ness and Van Ness, 2004;Chen and Tai, 2011;Jang et al, 2015;Dowling, Cummins and Lucey, 2016;Palao and Pardo, 2018) and cryptocurrencies (Fonseca, Pacheco and Lobão, 2020;Li, li and Chong, 2020). Overall, evidence of price barriers in various asset classes seems to be fairly robust.…”

Section: Previous Findingsmentioning

confidence: 99%

Do psychological barriers exist in Latin American stock markets?

Lobão

Fortuna

Silva

2020

RAE

Self Cite

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We examine for the first time the major stock markets of eight Latin American countries for indication of psychological barriers at round numbers. We test for uniformity in the trailing digits of the indices and use regression and GARCH analysis to assess the differential impact of being above or below a possible barrier. The Chilean stock market seems to be significantly different from its counterparts as it is the only one that showed virtually no signs of psychological barriers. There is mild to strong evidence of barriers in the remaining markets. These findings challenge the notion that most Latin American markets are unpredictable and lend credit to the claim that technical analysis strategies can be useful in some of these markets.

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Psychological barriers in the cryptocurrency market

Cited by 15 publications

References 40 publications

Motivations, Barriers and Risk-Taking When Investing in Cryptocurrencies

Motivations, Barriers and Risk-Taking When Investing in Cryptocurrencies

Psychological barriers in the electric market: study applied to the Nord Pool market

Do psychological barriers exist in Latin American stock markets?

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