We are in the grip of a social phenomenon like no other we’ve ever experienced. People are paying thousands of dollars for something that is essentially a reward for playing a computer game. It has no physical properties, questionable use, no regulation, and only exists when a sufficient number of other people’s computers say it does. It may already qualify as the greatest asset bubble in recorded history, yet may only just be getting started. National governments have been compelled to denounce it or restrict their citizens from purchasing it out of concerns for mass hysteria and the corruption of their youth. It exists on a software system that is maintained through a consensus of volunteer software engineers, and no one seems to know the true identity of the creator. If it were a futuristic novel, it would certainly be on the best seller list, but it’s a striking reality – a live theater performance unfolding before us in real time, and a financial, political, and social phenomenon of historic proportion. It may yet end up as having been a total farce or the beginning of a radically new global payment system.

Opinions on the cryptocurrencies are buzzing all over the Internet. Most, however, rely upon conventional financial analysis and historic comparisons, mixed with a stew of personal emotions and biases. Representative bias is rampant in these assessments, as people try to evaluate the concept of a cryptocurrency in the context of , which is as grossly inadequate as comparing an i-phone to a dial telephone. While elements of conventional finance and economics do exist, they must be viewed as only partially applicable here and elements totally unique to cryptocurrencies must be considered. In sum, I contend that...



the cryptocurrency phenomenon is better understood

from a behavioral perspective – one that understands the key behavioral groups involved and the motivations of each.



The intent of this writing is to add a behavioral dimension to the current discourse on cryptocurrencies and to raise awareness of the behavioral impact on financial markets. It should be viewed in the context that behavioral science is still a relatively new approach to financial markets and that there is extremely little empirical data to draw from regarding cryptocurrencies.

Nonetheless, I expect to provide insights I believe will be valuable to those involved or looking to get involved and I expect to build upon this foundation with future writings on the topic. References to other articles and contributions from others on the subject are welcome.

Rick Lehman

Adjunct Professor of Behavioral Finance,

UC Berkeley Extension

Golden Gate University

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