One of many extra underappreciated elements of the rise of spot Bitcoin ETFs within the US is the renewed perceived affordability of Bitcoin amongst new buyers. Whereas 1 BTC nonetheless equals 1 BTC, buyers buying shares in Bitcoin ETFs like IBIT, ARKB, BRRR, EZBC, and BITB can accomplish that for below $50 per share.
Whereas the relative quantity of Bitcoin owned per share signifies that buying 1 IBIT share for $33 is roughly equal to purchasing $35 value of Bitcoin, there’s a unit bias at play that wants addressing.
At the moment, $35 should buy you 0.00052BTC or 1 IBIT share. Additional, buyers should purchase 28 IBIT shares for $1000, or 0.015 BTC. In each eventualities, unit bias can skew buyers’ views into believing there’s a distinction.
Unit bias affecting investor sentiment
Unit bias is a psychological phenomenon the place buyers understand the worth of an funding primarily based on the unit value of its shares slightly than its general market capitalization or the corporate’s intrinsic worth. This bias can lead buyers to want belongings which can be priced at decrease per-unit prices below 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 unit bias would possibly go for a inventory priced at $1 per share over one that’s $1000 per share, pondering the previous is “cheaper” or represents a greater worth, though the worth per share is bigoted and must be thought-about in context with the full variety of shares excellent and the general valuation of the corporate. This bias can result in suboptimal funding selections if it causes buyers to miss extra elementary elements of the funding’s worth.
This isn’t the primary time we’ve seen such a phenomenon in crypto, as memecoin merchants typically want tokens or cash priced at decrease per-unit prices below the mistaken perception that these are cheaper or have extra development potential than higher-priced belongings.
Unit bias in crypto
Regardless of its potential to mislead buyers, unit bias has additionally performed a job within the success of particular crypto tasks, significantly these with giant token provides priced at decrease per-unit values. Under are examples and insights into how unit bias has influenced the crypto market.
Dogecoin is a first-rate instance of a undertaking that has benefitted from unit bias. Initially created as a joke, Dogecoin has a big provide with no cap, resulting in a comparatively low per-unit value in comparison with digital belongings like Bitcoin. This low value, mixed with a powerful neighborhood and viral advertising, has attracted many buyers who understand it as an inexpensive funding with the potential for vital returns regardless of its origins and essentially completely different worth proposition in comparison with extra established digital belongings.
Nonetheless, unit bias additionally has the potential to democratize funding within the crypto house by making it extra accessible to a broader viewers. The psychological enchantment of proudly owning “complete” models of digital belongings, slightly than fractions, can encourage extra individuals to take part within the crypto market, probably growing adoption and liquidity.
Whereas unit bias can result in irrational funding selections, it might even be serving to Bitcoin because of the low unit costs of Bitcoin ETFs by making them extra interesting to a broader viewers. Traders might understand lower-priced Bitcoin ETFs as undervalued, resulting in elevated shopping for stress and a subsequent value rise. This phenomenon, generally known as the “cheapness heuristic,” can drive up demand for Bitcoin ETFs, perpetuating a cycle of bullish sentiment.
