Why I Think Buying Ripple XRP is a Mistake
The meteoric rise of Ripple makes about as much sense to me as the rise of Carly Rae Jepsen in 2012. Given that crypto is largely a speculative market in which things often don’t make sense, my aim is to apply the twenty-five cognitive biases responsible for human misjudgment to the crypto space.
The first psychological bias I would like to bring your attention to in regards to Ripple is the contrast-misreaction bias. Simply put, this bias states that putting two things next to each other creates a misleading contrast. It’s like being presented with three choices of hamburger. Two of which were left outside all night in the rain and have been nibbled on by raccoons, while the third choice is gluten free and served by your in laws. Suddenly, number three looks really appealing regardless of its appeal in a vacuum or in comparison to a gourmet hamburger. Newcomers to the crypto space pull up the market cap charts and see bitcoin and ethereum at pricey levels they cannot afford, or at least not as a first investment. The contrast-misreaction bias thus makes Ripple look cheap and a value buy at under $3. People can have pride of ownership and boast about owning 50 Ripple without breaking the bank.
Next, we have the bias of social proof. Lots of people are buying Ripple. You hear your friends talking about it. You see posts on social media talking about it. Many humans like to follow the hard because it makes it easier to make a decision and gives you greater confidence at the time of the decision. Social proof is the number one bias that gets people burned in markets. Social proof implores you to buy high and sell low. You want in when it goes up, implying that other people approve of the investment right now. Unfortunately, that is not a sound investing policy.
Lastly, we have the over optimism bias. People go around talking about what one hundred dollars in bitcoin invested seven years ago would be worth today. Unfortunately, many people overlook scarcity. There are significantly more XRP than bitcoin in the market meaning Ripple will never, ever be worth the dollar amounts bitcoin is worth. The amount of market cap Ripple needs to have to even make it to $10 is staggering and why I am staying away. There are so many investment opportunities that we can afford to be picky. I would love to hear your opinions both on Ripple and the application of the cognitive biases to crypto.
Disclaimer: These are my views and should not be taken as investment advice. Due your own research before investing.