The Decoy Effect of the Crypto World

Jun 17, 2021

There is a major force affecting the crypto markets and it’s been invisible to everyone, until now. It’s called the “decoy effect” and chances are you’ve been affected by it.

You’re probably wondering what the decoy effect is, so let’s start with that. As much as it sounds like it, it doesn’t involve duck hunting. It’s how a price seems much cheaper when there is a similar and expensive item next to it (AKA the “decoy”).

Ever wonder why there’s always that one crazy expensive diamond or watch in the jewelry store? It’s not there to entice a Kardashian to buy it, it’s to make you perceive everything else as cheaper so that you buy something. And it works!. Likewise in the crypto markets, BTC is the shining US$40,000 diamond that makes altcoins seem relatively cheap. In crypto, the decoy isn’t drawing in ducks, it’s redirecting people’s money to other coins.

What can you do as a smart investor? First, recognize how a super expensive item pushes up your subjective values of other similar items, and perhaps even influences your optimism that other assets will also go that high. Second, ask yourself what’s pushing up the values and whether that makes economic sense, or you’ll be out wearing camo in the forest without a plan.

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