Why do people invest in crypto assets?

As has been consistently noted [2,3,8] throughout historical market manias, the behavior of investors is not always rational and the investor herd mentality and madness of crowds sometimes gives rise to bubbles. Burton Malkiel wrote in his book A Random Walk Down Wall Street:

A bubble starts when any group of stocks, in this case those associated with the excitement of the Internet, begin to rise. The updraft encourages more people to buy the stocks, which causes more TV and print coverage, which causes even more people to buy, which creates big profits for early Internet stockholders. The successful investors tell you at cocktail parties how easy it is to get rich, which causes the stocks to rise further, which pulls in larger and larger groups of investors. But the whole mechanism is a kind of Ponzi scheme where more and more credulous investors must be found to buy the stock from the earlier investors. Eventually, one runs out of greater fools

This coupled with the subculture of crypto assets and a narrative economics with the promises of easy money is a psychologically enticing proposition for a large demographic. The synthesis of the market mania and the narrative appeal of the culture and its political imaginaries appears to be the main driver of the crypto bubble.

There is also a strong sample bias in self-reported winnings of crypto assets. With participants who make outsized returns gambling on the bubble are more likely to report this returns compared to the vast majority of those who lost money as guaranteed by the negative-sum dynamics of gambling on crypto assets.

See madness of crowds, bubble, market mania, speculation and bandwagon bias.


  1. Malkiel, Burton Gordon. 1999. A Random Walk down Wall Street: Including a Life-Cycle Guide to Personal Investing. WW Norton & Company.
  2. Bernstein, William J. 2021. The Delusions of Crowds: Why People Go Mad in Groups. Grove Press.
  3. Blanchard, Olivier J, and Mark W Watson. 1982. ‘Bubbles, Rational Expectations and Financial Markets’. NBER Working Paper, no. w0945.
  4. Demmler, Michael, and Amilcar Orlian Fernández Domínguez. 2021. ‘Bitcoin and the South Sea Company: A Comparative Analysis’. Revista Finanzas y Política Económica 13 (1): 197–224.
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  9. Shaffer, Daniel S. 2010. Profiting in Economic Storms: A Historic Guide to Surviving Depression, Deflation, Hyperinflation, and Market Bubbles. John Wiley & Sons.
  10. Zetzsche, Dirk A, Ross P Buckley, Douglas W Arner, and Linus Föhr. 2017. ‘The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators’. University of Luxembourg Law Working Paper, no. 11: 17–83.
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  12. Koning, J.P. 2020. ‘Bitcoin Financial Literacy and Crypto-Twitter’. American Institute for Economic Research. https://www.aier.org/article/bitcoin-financial-literacy-and-crypto-twitter/.
  13. Panos, Georgios A, and Tatja Karkkainen. 2019. ‘Financial Literacy and Attitudes to Cryptocurrencies’. Available at SSRN 3482083.
  14. Hellegren, Z. Isadora. 2017. ‘A History of Crypto-Discourse: Encryption as a Site of Struggles to Define Internet Freedom’. Internet Histories 1 (4): 285–311. https://doi.org/10.1080/24701475.2017.1387466.