Crypto unit bias is a common phenomenon that describes how investors are more likely to invest in whole units of a cryptocurrency rather than fractional ones due to a psychological tendency to prefer the perception of owning a complete asset. Unfortunately, this bias can lead to missed opportunities for investment in higher-priced assets, as investors may opt for cheaper, whole-unit alternatives.

Understanding the psychology behind crypto unit bias can help you make better financial decisions and avoid falling victim to this common pitfall. So, let's get started!

What Is Crypto Unit Bias?

Crypto unit bias is a psychological phenomenon that can hinder rational thinking in trading and investment. It is rooted in the human desire to own a whole unit of an asset rather than just a fraction of it. This can lead to investors overlooking high-priced assets, such as Bitcoin or Ethereum, in favor of cheaper altcoins. This mistake is often made by newbie crypto traders who believe they cannot afford a complete BTC or ETH.

To better understand unit bias, think about the portion sizes of food. Small-sized plates reduce food portions in dieting but also signal that you have consumed a whole plate, making you feel satisfied. Buffets also use small-size plates to minimize food wastage, as people take small amounts of food but feel satisfied as they eat a "whole plate."

In the world of crypto trading, the same concept applies. Investors tend to favor buying cheap altcoins to own a complete unit rather than purchasing a fraction of a high-priced asset like Bitcoin. Overcoming crypto unit bias requires rational thinking and a willingness to invest in high-priced assets based on their potential rather than just their unit price.

How Unit Bias Can Affect Your Crypto Investments

Unit bias can significantly impact your thought process regarding crypto investments. A beginner may disregard high-value coins like Bitcoin or Ethereum, assuming they are unaffordable. They may not realize they can purchase these coins in fractions and instead seek cheaper altcoins they can buy in bulk.

Investors affected by unit bias may prefer crypto meme coins like DOGE or SHIB, whose value depends on community hype. They may be willing to invest $500 in Dogecoin but not the same amount to obtain 0.018 BTC (at the current rate). As a result, they do not consider important factors like the total supply or a project's long-term approach, making it challenging to profit from their investments.

While altcoins can be profitable, many beginners (and, let's face it, even folks that have been in the crypto game for years!) lack the necessary insights to make informed decisions. Therefore, cryptocurrencies that have dominated the market for years are safer for beginners. However, due to unit bias, many beginners go for lower-priced coins with slim chances of earning profits.

Crypto Unit Bias and Bitcoin Investments

A businesswoman holding a gold BTC and two people doing a discussion in the background .

Image Credits: Diana Grytsku/Freepik


 

One of the most prevalent misconceptions in the crypto market is that Bitcoin is too expensive for the average person. However, this is far from the truth. Bitcoin can be divided into smaller units, and each unit can be traded for profit. In fact, Bitcoin is divisible into eight units, with three subunits being the most common.

The first subunit is the Millibitcoin, or mBTC, representing one-thousandth of a Bitcoin or 0.001 BTC. The second subunit is the Microbitcoin, or μBTC, which represents one-millionth of a Bitcoin or 0.000001 BTC. This subunit also represents 100 Satoshi, another subunit of Bitcoin.

Satoshi is the smallest unit of Bitcoin, named after the pseudonymous creator of Bitcoin, Satoshi Nakamoto. One Satoshi is equivalent to the hundred-millionth part of a BTC and is denoted by Sat. Even if you own just one Satoshi, you are a holder of Bitcoin.

Understanding the divisibility of Bitcoin is crucial for new investors, as it breaks the perception that Bitcoin is only for the wealthy. Anyone can buy any amount of Bitcoin they can afford, no matter how small, and accumulate more over time. This knowledge can empower individuals to make informed decisions and potentially profit from cryptocurrency.

4 Ways to Avoid Crypto Unit Bias

To avoid the problems associated with unit bias in crypto trading, consider these four strategies.

1. Look Beyond the Price

Focusing solely on the price of a cryptocurrency can lead to unit bias. This approach may limit your understanding of the token's potential. Instead, consider other metrics, such as market cap, total supply, and trading volume, to gain a more comprehensive understanding of the market position of a coin.

2. Carry Out Fundamental Analysis

To make informed crypto investment decisions, conducting a thorough fundamental analysis of the cryptocurrency you're interested in is important. This involves assessing whether the coin is undervalued or overvalued. You need to research the project and learn about its use cases, founding members, technology, liquidity, whitepaper claims, and tokenomics.

Reading the whitepaper is crucial as it explains the project's vision, long-term goals, and how the coins are allocated for different purposes. Additionally, joining the token community can give you insights from an insider's perspective. This can help you determine whether the coin's popularity is genuine or a work of crypto shilling.

Green and red candle graph on a blue background

Image Credits: Rawpixel.com/Freepik


 

To avoid making emotional investment decisions, it's important to stay up-to-date with market trends and not rely on hype. Analyze different charts to evaluate a coin's recent performance and assess bullish or bearish trends based on corresponding volumes.

Look for trend reversals and use various metrics and indicators to determine a coin's price direction. Keeping an eye on the market trends can help you make informed decisions based on actual market data rather than relying on speculation or rumors.

4. Don't Just Buy the Asset Because It's Cheap

Investing in low-priced cryptocurrencies can be dangerous, as not every project in the crypto market can be trusted due to the increasing number of scams. Scammers often attract investors with the promise of high returns on their token, even though its price is low.

Inexperienced investors may be tempted to buy cheap crypto in bulk, which can lead to the loss of their investments due to low liquidity, further price drops, or rug-pull scams. It is essential to conduct thorough research and not buy a coin solely because it's cheap.

By following these steps, you can avoid the unit bias trap and make informed investment decisions based on a cryptocurrency's true value rather than just its price. Taking such precautions can help you steer clear of emotional biases and make objective decisions that are well-informed by market trends, fundamental analysis, and other crucial factors.

Assessing Digital Assets Beyond Price

Crypto unit bias can lead to irrational investment decisions based solely on price, disregarding the true value of a digital asset. To avoid this trap, investors should assess a cryptocurrency based on its market cap, adoption rate, and use cases, among other factors. By considering these aspects, investors can make informed decisions that reflect the true potential of a cryptocurrency and avoid being swayed by superficial factors like price alone.