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Elon Musk recently got social media talking (again) by claiming that too much cryptocurrency trading can cause mental health problems. This Tweet came shortly after the price of Bitcoin dropped by 7% in less than a minute. With mental health coming into greater focus in western countries – particularly as populations have struggled with multiple COVID-19 lockdowns – it seems appropriate to explore how investors can approach cryptocurrency investments in a healthy, responsible way whilst enjoying the opportunity to make good returns.
We explore this topic in more detail below and hope you find this useful. To find out more about our EIS and other investment opportunities, visit our portfolio page here. To enquire regarding our latest projects and funding (for investors and founders, respectively), you can reach us via:
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Cryptocurrency addiction
Professional psychological organisations are constantly adding new disorders and addictions to their lists – especially as new technologies emerge (e.g. social media) which can impact how we think and see ourselves. One new, possible phenomenon is cryptocurrency addiction, whereby traders become obsessed with trading the likes of Bitcoin.
Jake’s story, for instance, tells of how he lost millions of pounds trading cryptocurrencies. The “high” of making vast sums of money quickly was “euphoric”, but ended up trading money that was not his own to replicate his initial successes. When he lost his employer’s money his mental health deteriorated. He then faced criminal charges for embezzlement and needed to enter one of the UK’s only specialist hospitals for treatment.
An unknown known
One of the challenges with identifying cryptocurrency addiction in individuals is that it is quite a new addiction and there are few official statistics yet. Anecdotally, however, Castle Craig hospital in Blyth Bridge, Scotland has experienced a rise in patients over recent years looking for help with cryptocurrency addiction.
At least three factors, today, provide fertile ground for cryptocurrency addition to thrive. Firstly, there is the 24/7 availability of crypto trading. These markets are open all of the time and can be accessed from your bedroom, bathroom or as you walk – on your phone. Secondly, there is the speed of trading. Cryptocurrencies are notoriously volatile, potentially dropping or rising by the double-digits within minutes. This can lead people to believe that they can “get rich quickly” with a handful of good trades.
Thirdly, there is the feeling of “euphoria” when you do succeed on a big trade. This can make you want to pursue the feeling again. When you look around and think that other people are constantly making money with cryptocurrency investing, moreover, then it can be tempting to believe that your next successes will be easy. If your investment then falls – especially if you are leveraged – then this can lead to panic and making impulsive decisions to make your money back. If these trades then go wrong, then a downward spiral can quickly happen.
Trading wisely
It is likely that cryptocurrency trading or investing is simply not suited to the personalities of some people. Perhaps you believe you could become easily addicted to such an asset, or that the volatility involved is too much risk for you to stomach. If so, then it is good to be honest with yourself and limit/avoid exposure to it in your portfolio.
For those looking to invest in crypto, this can be exciting and rewarding. Yet it is important to recognise the risks and put measures in place to protect both your portfolio and your mental health. One simple approach is to limit your crypto exposure according to your financial goals and risk tolerance. For instance, if the majority of your wealth is tied up with cryptocurrency, then most people are likely to panic if this investment then drops, say, 40% in the space of a week. However, if cryptocurrency comprises 5% of your portfolio, for instance, then a dramatic fall in its value should not produce the same level of anxiety that could lead to bad decisions.
Another important step – for any investment – is to understand what you are investing in before committing capital. Do you want to put money into a cryptocurrency simply because you heard that others made money doing so? Or, do you appreciate how it works, why it has potential to grow in value and why it is better than alternatives on the market (after all, a new cryptocurrency is created at least every day).
It can help, moreover, to ask yourself how you would feel and what you would do if your cryptocurrency suddenly fell in value by 25% or more. Would you hold it and, if so, why? If you are honest with yourself that you would be too uncomfortable to keep it, then ask yourself why. Could it be that the risk is too great for you? Perhaps one way to address this is to commit a “stop loss” and a “take profit” order to your cryptocurrency investments. This can help protect your portfolio from excessive losses and also help lock in your gains.
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