What I have Learned About The Power Of Recency Bias In Bitcoin
We found this interesting thread on the power of recency bias in Bitcoin by @btcuserguide.
Before bitcoin I was an avid sports bettor who focused exclusively on market psychology. Since discovering bitcoin, I’ve observed similar parallels with bitcoin market sentiment.
Specifically, I want to share what I’ve learned about the power of recency bias.
🧵 (1/10)
Recency bias is well known in behavioral finance. It explains our human tendency to overweigh recent information compared to historic information. It’s what fuels often ill-fated “this time is different” thinking and overconfidence/exuberance.
(2/10)
In sports betting, it’s a similar concept. Bettors are often influenced to make decisions based on recent outcomes. For example, betting against a team coming off a humiliating loss and prescribing to the “you’re only as good as your last game” sports talk fallacy.
(3/10)
Recency bias is more prevalent in our daily lives than ever before. Mainstream media especially targets audience recency bias by exaggerating the gravity of all current events (i.e. literally everything being breaking news, ominous/melodramatic headlines, etc.)
(4/10)
So what’s this all got to do with bitcoin price sentiment? Well the bitcoin market is unlike anything we’ve ever seen. Trades 24/7, no central issuer, high volatility, wild price targets (high and low), etc. As such, many bitcoiners experience extreme recency bias.
(5/10)
This is noticeable when bitcoin is in a sideways market and trades in a tight range. Even this month, at $24k: widespread bullish sentiment, 5 days later at $21k: widespread bearish sentiment. Viewing bitcoin as only as good as it’s most recently traded price.
(6/10)
Recency bias is emotional poison for traders. “It’s bad now and it’s going to get worse”, “It’s good now and it’s going to get better”. Emotionally driven decision making that ensures you’re the sucker late to the party. (PSA: I don’t trade and wouldn’t suggest it)
(7/10)
Not to say things can’t get worse/better but I challenge those who feel that way to look inwards and assess if their sentiment is driven by historical data and rigorous analysis or is it just because of how the current price makes you feel? The latter is recency bias 🚩
(8/10)
Why do we experience this recency effect? It’s simply because we remember things more clearly in the present than in the past and this effect is amplified when too much information is presented at once (hi digital age). Our brains leap from one current thing to the next.
(9/10)
Is bitcoin actually more bearish today than it was at $69k? Or are people just prisoners of present information only?
“Worrying is praying to the devil”
(10/10)
Pleb Underground is powered by a collective of Bitcoin pleb content creators. Thank you to everyone who contributes, supports us and shares our content. Follow us on twitter @plebunderground