Crypto Unit Bias: How to Avoid Being Tricked By It

The Story of Jane and John

Jane and John are both investors in the cryptocurrency market. They both want to invest $500, but they have different approaches. Jane decides to invest in Bitcoin, while John opts for a lesser-known altcoin, which has a lower value per unit but promises higher returns in the long run.

Both Jane and John believe they made the right decision, but who made the smarter investment?

What Is Crypto Unit Bias?

Crypto unit bias refers to the psychological bias that influences investors to ignore the value of assets and focus solely on the price per unit. This is especially common in the cryptocurrency market, where prices can vary widely even among different cryptocurrencies that offer similar functionality.

This bias leads investors to find comfort in cryptocurrencies with higher price per unit, assuming that they are more valuable than those with lower prices. However, this is not always the case and investing purely based on price per unit can lead to losses.

Real-Life Examples

Bitcoin is a prime example of how crypto unit bias can affect investments. Investors often assume that Bitcoin, being the most expensive cryptocurrency, is the most valuable. However, this is not always true, as there are other cryptocurrencies with lower prices that offer better functionality and prospects for returns.

Another example is Dogecoin, a meme-inspired cryptocurrency that saw a huge surge in popularity due to celebrity endorsements and social media hype. Many investors invested in Dogecoin purely based on its low price per unit, assuming that it would eventually reach the heights of Bitcoin. However, Dogecoin's value ultimately crashed, resulting in significant losses for these investors.

Main Companies

• Coinbase
• Binance
• Crypto.com

How to Avoid Falling Prey to Crypto Unit Bias

To avoid falling prey to crypto unit bias, investors should consider the following:

1. Do your research: Study the technology, market trends, and functionality of the cryptocurrency before investing.
2. Look at the market capitalization: The value of a cryptocurrency is determined by its market capitalization rather than its price per unit.
3. Diversify your portfolio: Invest in different cryptocurrencies with different functionality and prospects to spread your risk.