- The case for the left digit
All of us have come across prices that end in ".99" and never bothered much about how many cents we were paying extra on top of the currency we were using.
There is also the case for the left digit effect in which in which people will only look at the left digit of a price and the number of digits until the dot or comma, to rapidly identify the level of grandiosity of the general number (amount of currency).
So for instance, in a price between €10 and €100 we identify the left digit and then how big is the number in itself:
1.99
3.50
14.80
32.10
99.05
In a hypothetical (or even real) situation where there is product A, priced at the same level as the competing product B, the consumer will not care much for a price difference between 80€ and 85.99€. The boolean decision of Yes/No, 0/1, based solely on the price gives an infinitely low relevance to these price differences. All the mind sees is the 8 and identifies it as in the dozens level. All we need is a sense of how great or small that price is. And the smaller the price of a product, the lazier we get to calculate impacts on our wallets, the fast the buying decisions are made based on that left digit.
- The case for round numbers
When telling time or counting, we all tend to round numbers. 11h09 can easily become 11h10 or even just 11h and counting the number of people on a football stadium can easily become 70k instead of 72835. This usually happens when precision is not important and all we want is, once again, the sense of grandiosity. What matters are quick calculations or easy communication. Impulsive investors don't invest (pun intended) their time on researching or even thinking. All they want is to invest a few bucks on coins/tokens that they were led to believe will give them 10x or 100x gains, based on the previous gains of that same or other coins/tokens.
- While investing in cryptocurrencies, many of us will only care about the round numbers.
"Price is going to $1 soon"
"Up, up, up to $100!"
"The price will soon moon after it reaches $100,000,000 of market cap!"
A cryptocurrency that has a $100M market cap, more than 10K followers on social media and at least $1M trading volume on the last 24h, is a well respected cryptocurrency on the cryptospace and social media.
For quick, impulsive buying or selling, left digits and round numbers are more important than ever before.
- The irrationality of the market
Yes, I wrote social media. It is what matters nowadays. We all know there are whales in cryptocurrencies that can plunge the prince of a coin or token. But the most dangerous aspect of the market nowadays is the market share of "weak hands". Unexperienced traders and investors made their entrance in early 2017 on cryptocurrencies. Since then, what matters is not the white paper, is not the roadmap and is not the utility of the coin or token.
It is the hype and the hashtag and the Pump.
2017 was marked by the entrance of fresh, inexperienced investors money. FOMO Korean Won, US Dollar, Euro, Japanese Yen and so on. And it has been great for the market. But this is also money that tends to value too much, round numbers. The 2017 investors also tend to value what is written on comments on youtube videos and troll boxes on exchanges. There are now dozens of popular P&D groups on telegram and even cryptocurrencies adds on youtube for ICOs and traded cryptocurrencies.
- Concluding remarks and the case for daily variations
Finally, this is the most concerning aspect of this market. If the price goes up 50%, 20 days in a row it just has to go down 10 days in a row 50% for the price to go down in comparison to the initial price. Another situation is looking at the graph below and thinking that now it is really the time for big % gains. Any 10x increase in 2013 would look tiny in this graph compared to a 20% increase on December 2017.
Which brings us to a final remark. The Nxt ICO has given returns of more than 1,000,000%.
What many investors don't realize is that small % variations now will impact greatly that ROI.
A 10% decrease in price, makes an ROI of 1,000,000% lose 10,000 p.p. (percentage points). Any small variation now will have a huge impact on the ROI after all the 2fold, 4fold and 10fold price increases that the cryptocurrency suffered.
We need more rationality, thinking, wondering, researching and comparing on this market.
There are famazing projects that do not have credit enough (literally), due to the excessive amounts invested on inferior, more hyped coins and tokens.
Thank you for your time.