Bitcoin fever is back.
Bitcoin hit a new high in early January, reaching a price of nearly $42,000. On Friday morning, the price of the notoriously volatile cryptocurrency was about 32,500, according to CoinDesk.
Even mainstream financial institutions are warming up: JP Morgan said, in the long-term, if the market cap gets high enough that it competes with gold, the price of bitcoin could reach $146,000, in a note published in January. (Bitcoin currently has a market value of over $600 billion.)
But more than just a cryptocurrency, bitcoin has become an obsession for many. Here are some of the behavioral and psychological reasons why.
Bitcoin becomes part of your identity
Bitcoin is "more religion than solution to any problem," billionaire Mark Cuban told Forbes in December.
In fact, bitcoin aficionados have their own jargon full of acronyms and phrases from "HODL" to "whale," and (pre-Covid) bitcoin conferences would attract thousands of attendees. The crypto crow even has a preferred car to buy with their bitcoin: the Lambo (aka Lamborghini).
"The culture around bitcoin is part of the appeal," says Finn Breton, professor of science and technology at the University of California Davis and author of "Digital Cash: The Unknown History of the Anarchists, Utopians, and Technologists Who Created Cryptocurrency."
"When you buy bitcoin, you're actually buying into a whole scene," Breton says. "And it's a scene that can be a part of your identity."
Though bitcoin is getting more attention from some serious investors and mainstream financial institutions, it's still a somewhat subversive concept, so people who invest in it can view themselves as radical or participating in counterculture, Breton says.
Social media plays into it
From celebrities who invest in bitcoin, to a highly-engaged bitcoin community on Twitter, TikTok and Reddit, social media feeds into bitcoin's popularity.
"Suddenly, there's like a new way to see, finance and to have an identity of yourself as an actor in like the financial space," says Lana Swartz, assistant professor of media studies at the University of Virginia and author of "New Money: How Payment Became Social Media," tells CNBC Make It.
These social platforms can also drive behaviors, according to Utpal Dholakia professor of marketing at Rice University, who studies consumer financial decision-making. Research has shown that when people talk about their investments in online social environments, they tend to become more risk-seeking in the types of investments they make, he tells CNBC Make It.
"The same dynamic applies to a lot of investment decisions which are being made right now," Dholakia says.
The volatility can be exciting
Many smart investors, from Kevin O'Leary to CNBC's Jim Cramer, have likened buying bitcoin to going to Vegas. Berkshire Hathaway CEO and chairman Warren Buffett has been a longtime critic of bitcoin, saying that "cryptocurrencies basically have no value" and are a "gambling device."
And as with gambling, "some people certainly enjoy that thrill," Dholakia says.
Checking the price of stocks regularly is an activity that could get boring, says Tom Meyvis, professor of marketing at New York University's Leonard N. Stern School of Business. "With something like bitcoin, it's exciting because there's constantly something happening," he says. "You can check it 10 times a day and the price can vary wildly."
Also, many young people especially, who have grown up with video games and social media, are conditioned to want instant gratification and fast-paced cycles, Swartz says. Being drawn to high-risk high-reward investments like bitcoin "makes perfect sense," she says.
People get excited by the prospect of bringing a new, potentially life-changing, technology into the world. And with bitcoin bulls predicting the crypto's price could go as high $200,000 over the next decade, and with mainstream financial businesses from Paypal to Square getting into bitcoin, it's hard not to fear missing out.
Add to that the viral stories about people who have had success with bitcoin: There are enviable windfalls, from instant bitcoin millionaires to stories like the "Bitcoin Family," a Dutch family of five who liquidated their assets in 2017 in exchange for bitcoin (when bitcoin was priced at $900), moved into a van and traveled the world.
"People focus more on the upside than the downside," says Meyvis. So it's easy to get swept up in the possibilities that could come from bitcoin.
It provides hope
"Money is a technology that allows us to imagine futures," Swartz says.
The bitcoin excitement, particularly among young people, illustrates that people feel "locked out of the ability to have the kind of assets that would let them generate any form of wealth," Breton says. Millennials, those born between 1981 and 1996, controlled just 4.6% of U.S. wealth through the first half of 2020, according to data from the Federal Reserve.
"When we look at the fever around bitcoin, we really need to see it like in part as a demonstration of the fact that this is happening because there are not reliable, non-speculative mechanisms whereby people who don't already have access to a chunk of wealth could produce wealth over time," he says. "And that's a real indictment of the way things are currently set up for younger people."
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