In the cryptocurrency world, “shitcoins” refer to essentially worthless digital tokens built to capitalize on hype and generate quick profits for their creators. Despite the high risks, many novice investors still fall for shitcoin mania. Understanding the psychological factors driving shitcoin investment can help explain this phenomenon.
Fear of Missing Out (FOMO)
FOMO, or fear of missing out, is a powerful force in the crypto space. Investors hear stories of people making massive gains from tokens like Dogecoin or Shiba Inu. When they see coins exploding in value, they want in on the action.
Shitcoins fuel this FOMO by using hype and false scarcity tactics. They announce a new token is dropping soon with limited supply. This triggers a rush of investors trying to get in early before prices skyrocket. The fear of missing potentially massive gains pushes people to ignore the blatant risks.
Investing in shitcoins has often been compared to playing the lottery. While the odds are stacked against you, there is a small chance you could become incredibly rich.
People are drawn to the idea of turning a small investment of $100 into potentially millions. Even though rationally they know the odds are infinitesimal, the lottery-style payoff is enough to entice them. This lottery mentality leads people to keep chasing shitcoins hoping to strike it big one day.
Greater Fool Theory
The greater fool theory states you can profit from overvalued assets by selling them to an even greater fool down the line. When it comes to shitcoins, investors don’t necessarily believe in the long-term viability of the project.
Instead they hope to ride the hype wave and sell to the greater fool before the inevitable crash. As long as there is someone more foolish who will buy the token at an even higher price, they can make money. This dangerous speculation helps sustain shitcoin manias.
Affinity fraud refers to scammers targeting specific groups, whether ethnic, religious, professional, or online communities. Crypto scammers build hype within groups like Reddit or Telegram channels to take advantage of people’s inherent trust in their community.
Once a shitcoin gains a foothold in a community, skeptics are shouted down and groupthink takes over. People are more likely to let their guard down and fall for scams when they originate from within their own community.
Many shitcoins use fun terminology and mechanics from gambling and video games to drive addiction-like investment behavior. They offer features like jackpots, rewards for referrals, penalties for selling, and other gamified elements.
These tactics tap into the same psychological responses that make gambling addictive. The drive for rewards and achievement feeds a compulsive loop that causes investors to keep pouring more money into shitcoins regardless of their actual value.
Lack of Financial Literacy
Limited financial literacy leaves many new crypto investors highly vulnerable to scams. They do not understand how to analyze tokenomics, read charts, evaluate teams, or spot basic warning signs of a pump and dump scheme.
This knowledge gap leads them to invest based solely on hype and emotion. Shitcoin scammers are well aware of this lack of literacy and expertly manipulate it to their advantage.
Cynicism Around Traditional Finance
For some investors, buying shitcoins is almost an act of defiance or protest against traditional finance. Years of disproportionate rewards for Wall Street while Main Street struggles has fueled disillusionment and cynicism.
Driven by this mindset, investors convince themselves meme coins or obviously worthless shill tokens are just as legitimate as anything from centralized banks and markets. This cynical perspective prevents them from making rational investment decisions.
Human brains are hardwired with certain cognitive biases that can lead us astray when investing. Confirmation bias makes us give more weight to information confirming our beliefs. Survivorship bias focuses our attention on the winners and ignores past failures.
These innate blindspots leave us vulnerable to shitcoin scammers who play to our biases. When our psychology is exploited, we can easily make foolish financial decisions against our own best interests.
Sense of Community
For some investors, joining a new shitcoin community provides a sense of belonging and inclusion. They develop an emotional attachment that goes beyond just the financials.
Scammers build hype in private groups and through engagement tactics to foster this feeling of community. Once invested in the community, investors are more likely to hold through red flags and shun outside criticism. This psychological bond traps them in dying projects.
While most would agree shitcoins carry substantial risk, understanding the psychology behind their allure can help explain why money continues pouring into them. By recognizing factors like FOMO, lottery mindsets, affinity fraud, and brain biases, we gain insight into the forces driving foolish financial decisions.
Awareness of these pitfalls enables us to stop, think critically, override emotions, and invest rationally based on real project fundamentals. Psychology may contribute to shitcoin mania, but disciplined thinking provides the cure.