Thrill-Seeking Drives Investors to Trade Crypto, Study Finds

Investors who trade crypto tend to take bigger risks in the stock market, suggesting they seek dopamine more than diversification, a study found.

AccessTimeIconOct 14, 2019 at 2:15 p.m. UTC
Updated Sep 13, 2021 at 11:34 a.m. UTC

Investors who trade cryptocurrency also tend to take bigger risks in the stock market, suggesting they are seeking dopamine more than diversification, according to a recent study.

The paper, titled "Are Cryptocurrency Traders Pioneers Or Just Risk-Seekers? Evidence From Brokerage Accounts," appeared in the September issue of Economic Letters, stating that cryptocurrency traders' behavior is "driven by excitement-seeking."

"We find that when engaging in cryptocurrency trading investors simultaneously increase their risk-seeking behavior in stock trading as they increase their trading intensity and use of leverage," the paper says.

Researchers Matthias Pelster from the University of Paderborn, Bastian Breitmayer of Queensland University of Technology and Bond University's Tim Hasso used individual-level brokerage data to assess the impact of cryptocurrency trading on investor behavior in the stock markets.

The sample period was from Jan. 1, 2014, to Dec. 31, 2017, consisting of 668,067 individual investors.

The study found that on average, traders execute 16.8 additional stock trades and increase their use of leverage by 13.4 percent within the first 10 days after initiating their cryptocurrency activities.

Notably, traders in the age group of 35 to 44 years old increased their leverage the most, followed by 25- to 34-year-old traders.

Wild ride

The pattern of behavior could be associated with the fact that cryptocurrencies are far more volatile and unpredictable than stocks.

For instance, bitcoin, the top cryptocurrency by market value, often moves by more than $1,000 in a matter of just a few minutes. That sudden price volatility is rarely seen in the equity markets.

Also, as the U.S. Securities Exchange and Commission (SEC) stated last week in rejecting a proposed bitcoin exchange-traded fund, the bitcoin market is prone to market manipulation. So, the uncertainty element is high in cryptocurrencies as compared to stocks.

Hence, it's not surprising that stock traders are more likely to take more risks in equities after dabbling with cryptocurrencies.

The researchers also observed that the increase in risk-seeking in stocks is particularly pronounced when volatility in cryptocurrency returns is low.

That conclusion undercuts the popular narrative that bitcoin is a new safe-haven asset.

After all, if traders viewed cryptocurrencies as a long-term investment avenue or a safe haven asset, then their stock trading behavior should have remained unchanged.

Disclosure: The author holds no cryptocurrency assets at the time of writing.

Thrill-seekers image via Shutterstock

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

Trending

1
CoinDesk - Unknown
What It’s Like to Work as a DAO Bounty Hunter

Meet "T Wells," a 30-something former educator who, in 2021, began working for “bounties” (or gigs) in the DAO ecosystem.

CoinDesk - Unknown
2
CoinDesk - Unknown
Luna (LUNA) vs. Luna Classic (LUNC): What Is the Difference?

After the implosion of the Terra network and its tokens, the community approved a plan to relaunch the project, leaving many confused about the new names. Here’s a guide to the two different Terra blockchains and which tokens belong to which.

CoinDesk - Unknown
3
CoinDesk - Unknown
Bitcoin cae debajo de $20K en medio de preocupaciones por la inflación en España y signos de debilidad

Traders analizaron la creciente inflación y la debilidad de crecimiento de bitcoin para los próximos meses.

CoinDesk - Unknown
4
CoinDesk - Unknown
First Mover Americas: BTC Dips; 3AC Liquidation Reportedly Ordered by BVI Court

The latest moves in crypto markets in context for June 29, 2022.

CoinDesk - Unknown