Exploring investor behavior in Bitcoin: a study of the disposition effect
This addresses the problem of understanding investor irrationality in cryptoassets for researchers and market analysts, though it is incremental as it extends known effects to a new market.
The study investigated whether the disposition effect, where investors irrationally sell winners and hold losers, applies to Bitcoin, finding that it was present with varying intensity, especially from 2017 onward, as confirmed by technical indicators.
Investors commonly exhibit the disposition effect - the irrational tendency to sell their winning investments and hold onto their losing ones. While this phenomenon has been observed in many traditional markets, it remains unclear whether it also applies to atypical markets like cryptoassets. This paper investigates the prevalence of the disposition effect in Bitcoin using transactions targeting cryptoasset exchanges as proxies for selling transactions. Our findings suggest that investors in Bitcoin were indeed subject to the disposition effect, with varying intensity. They also show that the disposition effect was not consistently present throughout the observation period. Its prevalence was more evident from the boom and bust year 2017 onwards, as confirmed by various technical indicators. Our study suggests irrational investor behavior is also present in atypical markets like Bitcoin.