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COVID-Induced Social Isolation Increased Cryptocurrency Investments by 75%
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Lockdowns during the COVID-19 pandemic have seen an exponential increase in cryptocurrency investment, partly driven by the stress of social isolation, QUT researchers have found.
The study findings have important implications for financial advisorsmarketers and policymakers on how to curb excessive risk-taking among isolated individuals.
THE item“Social Isolation and Risky Behavior: The Case of COVID-19 and Cryptocurrency,” was published on Journal of Retail and Consumer Services.
Dr Thinyanthy Lavan and Professor Brett Martin, from the QUT School of Advertising, Marketing and Public Relations, with overseas colleagues, studied consumer interest in cryptocurrency during the pandemic.
Dr Lavan said the team looked at the impact of prolonged pandemic enforcement social isolation along with economic instability that has driven risk-taking behaviors, particularly in cryptocurrency investments.
“At the start of the pandemic in January 2020, the market capitalization of these online currencies was around $191 billion, but by December 2020 it had risen to $769 billion,” Dr Lavan said.
“This change is underlined by the significant increase in the price of Bitcoin, which grew by 700% from March 2020 to March 2021.
“The attractiveness of these high-risk investments may be linked to their perceived potential for high returns during times of crisis economic instability and market volatility.
“An additional factor may be the tendency of people to try to restore some control over their lives and gravitate towards more autonomous and seemingly empowering activities, such as cryptocurrency trading.
“With this in mind, our goal was to look for the broader psychological responses to social isolation that catalyzed these changes in consumer decision-making, particularly in the adoption of new and potentially riskier behaviors.
“Previous research has established the direct effects of social isolation on risk-taking behavior in situations other than purchasing, such as sharing personal information about means of social communicationbut this is one of the first studies to examine risky purchasing behavior.”
Professor Martin said he conducted a survey in December 2022 during a lockdown period in Australia of 216 participants selected for knowledge and familiarity with cryptocurrency, but who were not current investors.
“By focusing on potential future investors, we aimed to capture unbiased perceptions and insights into cryptocurrency investment decisions,” Professor Martin said.
“Our investigation sought to identify how three psychological constructs – perceived stress, sense of control and neuroticism – might underlie the relationship between social isolation and risky behaviour.
“Perceived stress is a personal interpretation of stress regarding a situation in a person’s life that he or she considers beyond his or her coping abilities, while sense of control reflects a person’s belief in his or her ability to influence events and outcomes in his or her life .
“Neuroticism is the tendency to experience negative emotional states such as anxiety and impulsivity.
“Our analysis of the results showed that perceived stress, rather than a sense of control or neuroticism, plays a key role in driving risky behavior during times of social isolation.
Professor Martin said the researchers were not criticizing the cryptocurrency.
“To be clear, my recently published research showed how the process of cryptocurrency investing can have a positive effect on people’s lives.
“In this project, we examined the effect of lockdowns and isolation-induced risk-taking. This research can provide insights into developing better support strategies for vulnerable populations.”
The research team included Dr Lavan, Professor Martin, Professor Weng Marc Lim and Professor Linda Hollebeek from Sunway University, Malaysia.
More information:
Soyanthy Lavan et al, Social isolation and risky behavior: the case of COVID-19 and cryptocurrency, Journal of Retail and Consumer Services (2024). DOI: 10.1016/j.jretconser.2024.103951