One of many extra underappreciated points of the rise of spot bitcoin ETFs within the US is the renewed perceived affordability of bitcoin amongst new traders. Whereas 1 BTC continues to be equal to 1 BTC, traders shopping for shares of Bitcoin ETFs like IBIT, ARKB, BRRR, EZBC and BITB can achieve this for lower than $50 per share.
Whereas the relative quantity of bitcoins owned per share implies that shopping for 1 share of IBIT at $33 is roughly equal to purchasing $35 price of bitcoins, there’s a unit bias at play that must be addressed.
Presently $35 should buy 0.00052 BTC or 1 share of IBIT. Moreover, traders should buy 28 IBIT shares for $1,000 or 0.015 BTC. In both situation, unit bias can skew traders’ views into believing that there’s a distinction.
Unit bias affecting investor sentiment
Unit bias is a psychological phenomenon the place traders understand the worth of an funding primarily based on the unit value of its shares relatively than its complete market capitalization or intrinsic worth of the corporate. This bias can lead traders to choose belongings which can be priced at decrease unit prices within the mistaken perception that they’re getting extra worth for cash or that these lower-priced investments have extra room for development in comparison with higher-priced choices.
Traders affected by the unit bias could select a inventory priced at $1 per share over a inventory priced at $1,000 per share as a result of they assume the previous is “cheaper” or represents higher worth, regardless that the worth per share is unfair and should take her under consideration. context with the whole variety of shares excellent and the whole valuation of the corporate. This bias can result in suboptimal funding choices if it causes traders to miss extra elementary points of an funding’s worth.
This isn’t the primary time we’ve got seen such a phenomenon in cryptocurrencies, as memecoin merchants usually choose tokens or cash with decrease unit prices within the mistaken perception that they’re cheaper or have extra development potential than increased priced belongings.
Unit bias in cryptocurrencies
Regardless of its potential to mislead traders, unit bias has additionally performed a task within the success of particular crypto initiatives, significantly these with giant token provides at decrease costs per unit. Beneath are examples and insights on how unit bias has affected the crypto market.
Dogecoin is a main instance of a venture that advantages from unit bias. Initially created as a joke, Dogecoin has a big provide with no restrict, leading to a comparatively low unit value in comparison with digital belongings comparable to Bitcoin. This low value, mixed with a powerful neighborhood and viral advertising, has attracted many traders who see it as an inexpensive funding with the potential for important returns regardless of its origins and a essentially totally different worth proposition in comparison with extra established digital belongings.
Nonetheless, unit bias additionally has the potential to democratize investing within the crypto area by making it accessible to a wider viewers. The psychological enchantment of proudly owning “entire” items of digital belongings, relatively than fractions thereof, could encourage extra folks to take part within the cryptocurrency market, probably growing adoption and liquidity.
Whereas unit bias can result in irrational funding choices, it will possibly additionally assist bitcoin as a result of low unit costs of bitcoin ETFs, making them extra interesting to a wider viewers. Traders could understand lower-priced Bitcoin ETFs as undervalued, resulting in elevated shopping for stress and subsequent value appreciation. This phenomenon, often called the “cheapness heuristic,” can enhance demand for Bitcoin ETFs and perpetuate the bullish sentiment cycle.
