HANOI MINISTRY OF EDUCATION AND TRAINING

National Economics University

School of Advanced Educational Programs
***

GROUP MID-TERM ASSIGNMENT

International Business Administration Intake 62B

Group 1: Nguyễn Xuân Duy Anh 11204473

Trần Trung Đức 11200877

Nguyễn Vân Khánh 11205611

Nguyễn Lê Diệu Linh 11205812

Đỗ Hoàng Nam 11206216

Phạm Văn Phong 11206518

Phan Thị Cẩm Tú 11208284

Assoc. Prof. : Tran Thi Bich

Report title : Information Accessibility and the Bitcoin

Bubble Incident

Course: Business Statistics

Ha Noi, October 2nd 2022.

 Table of Content

Article Summarizing 2
Introduction 3
Basic Definition 4
Hypotheses 5
Herding Behavior - the Fear of Missing Out Theory
(FOMO) 5
Overconfidence - the Greater Fools Theory. 5
Discussion 7
Data Analyzing 8
Conclusion 19
Limitation & Future Scope of Research 20
Reference 21

1
 Part 1
Article Summarizing

2
I. Introduction
In 2018, Bitcoin spent most of the year in a tremendous downtrend, which
is widely known as the 2018 Cryptocurrency Crash (or the 2018 Bitcoin
Crash).
At that time, the price of Bitcoin fell by about 65% from 6 January to 6
February 2018. By the end of the first quarter, Bitcoin was down nearly 50
percent from where it had started the year. It spent much of the year
bouncing between $6,000 and $8,000, with a yearly high of nearly $14,957
before closing 2018 at $3,709 (CoinMarketCap, 2020).
Subsequently, nearly all other cryptocurrencies followed Bitcoin's crash.
By September 2018, cryptocurrencies collapsed 80% from their peak in
January 2018, making the 2018 cryptocurrency crash worse than any
collapses before. This subsequent fall of Bitcoin is believed to have
features of an Economic Bubble (Cross et al.,2021).

Inheritance from previous research, this report will examine theories and
analyze the relationship between them and this financial crisis using
descriptive statistics.

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II. Basic Definition
1. Cryptocurrency:

A cryptocurrency is a digital currency in which transactions are verified

and records are maintained by a decentralized system using cryptography,
rather than by a centralized authority (Banerji et al., 2021). First being
introduced to the public as an open-source software in 2009, the number
of cryptocurrencies now has reached 18,000 for a total market
capitalization (market cap) for all cryptocurrencies of $2 trillion.
Cryptocurrencies can be used for various purposes but all have some
common features. They require the participants to share their information
on a peer-to-peer digital network without the intervention of any third
party, thus guaranteeing anonymity during the transaction process.

2. Economics Bubbles:

There is no clear definition about economic bubbles. However, an

economic bubble (or financial bubble) could be understood as a period
when current asset prices greatly exceed their intrinsic valuation, being
the valuation that the underlying long-term fundamentals justify. When it
occurred, the prices of the stock were inflated and fragile – expanded
based on nothing but air, and vulnerable to a sudden burst.

These bubbles usually end in debt deflation, bank runs or a currency

crisis when the government can no longer maintain the fiat currency.
Examples of this financial crisis are the Roaring Twenties stock market
bubble (which caused the Great Depression) in the 1920s and the United
States housing bubble (which caused the Great Recession) in the 2000s.

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III. Hypotheses
In terms of behavioral causes, the Bitcoin bubbles might be caused by the
Herding behavior (which is driven by the Fear of Missing Out, FOMO,
theory) or the Overconfidence of the Investors (which can be explained
using the Greater Fools Theory).

1. Herding Behavior - the Fear of Missing Out Theory

(FOMO)
Herding behavior occurs when the investors rely on the market
movements more than on their own perceptions.
In the case of Bitcoins, the buying frenzy was termed more of a ‘Fear
of Missing Out’ mania, a theory that works as a foundation of Herding
behavior. (Banerji et al., 2021) The Fear of Missing Out, also known as
‘FOMO’, is influenced by the social culture around the investors. With
the popularization of social media, people are often overwhelmed with
information at all times. In terms of economic aspects, diverse
information forces investors to be selective about which information
they will act upon. Sometimes, investors behave in imitation of the
group trend and they begin to follow what other people around them
are doing. In other words, Herding may influence people to join in the
trend unknowingly. (Banerji et al., 2021)
The FOMO Theory can explain both the sustained growth of a bubble
over a period of time and the dramatic collapse when “the herd of
investors” begins to sell rather than to buy.

2. Overconfidence - the Greater Fools Theory.

Another noticeable cause is the rise in confidence of investors. In
Bitcoin, there is no intervention from neither the network nor the
government. All transactions remain ambiguous, making the investors’
personal speculation and assumption the only tools to examine the
market. Occasionally, investors might believe that they have better
information or abilities than others and such individuals become
overconfident.
Overconfidence may cause a biased rise of asset prices, causing the
prices of some to be much higher than their instinct value. (Banerji et
al., 2021)

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The Greater Fools Theory may be an affectation of the overconfidence
of investors. Normally, people believe they are capable of identifying
the price at which they think optimal profit will be made, gambling on
others’ inability to recognize opportunities and threats. However, the
Greater Fools Theory doesn’t state that all investors are “fools” and
none of them are rational in making decisions. On the contrary, the
theory works on the belief, how they think others’ decisions might be.
Individuals can be fully aware that the price of a certain asset is
inflated but still decide to purchase such an overvalued asset because
they know (and believe) that there’s always someone being a “greater
fool” and willingly to pay a higher price for it. Under the Greater Fools
Theory, an investor buys securities without any regard to their qualities
on his own belief, but with regard to their qualities on others’ beliefs.

A general process of a bubble under the Greater Fools Theory could be

(Sun, 2011):

● There’s an increase in value in the stock market.

● Being attracted by the idea of stock investment, people begin to
invest, potentially becoming “greater fools”.
● Initial investors would find it is profitable to buy overpriced stock
and sell it to the next greater fools.
● Stock prices would continue to rise and create abnormal returns for
the early fools.
● Finally, supply of the greater fools started to diminish. Stock
market crashes as a consequence. Early fool's earnings are from the
last fool's huge loss.

The behavior in which a fool buys assets and sells them to greater fools
continues until the asset is sold to the greatest fool who can’t find any
new buyers, at which point the value plummets. (MacDonell, 2014)

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IV. Discussion
What is the main cause of the Bitcoin Bubbles incident?

The Herding behavior (or the FOMO theory) might be a better explanation
to this situation.

According to the ‘FOMO’ theory, people believe that others have more
information than they do. The overloaded information and the accessibility
to public networks make it even more obligatory for individuals to
unknowingly rely on the external cues to fulfill their underlying
uncertainty about the quality of private information and the rationality of
their own opinions. Additionally, the anonymity of Bitcoins and the freely
available internet is a perfect condition for the prioritization of group
trends and subsumption of the self for the ‘FOMO’.

Also, it is difficult to believe that the investors may be misled into thinking
that they have access to better information, as stated in the Greater Fools
Theory. Even the most successful investors cannot guarantee the
movements of the market, or have a belief that they exceed others. Given a
situation in markets where assets are priced accurately and no investors
consider themselves superior to others, bubbles are still formed.

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 Part 2
Data Analyzing

8
 Due to a shortage of time, our team could work only on the impacts of
Herding behaviors, or the FOMO effects as the main cause of the Bitcoin
bubbles. Through a questionnaire within 1,5 weeks, 482 respondents about
6 different aspects of FOMO have been collected. In the next part, the
descriptive statistics would be presented and analyzed to prove the
relationship of FOMO effects and Bitcoin bubbles in a few aspects.

This graph indicates whether people would like to get updated information
about the trend of their invested stocks right away, from various income ranges.

It is obvious that people mostly agree to get updated information in every

income range (209/482 people in total), next to that is the totally agreed level
(134/482 people in total). Only 6/482 and 16/482 people totally disagree and
disagree respectively.

With the lower income level (from “under 5 million VND” to “20 to 30 million
VND), people mostly agree with this statement.

With the higher income level (the rest), the number is distributed more equally
to each level, there is not much difference among the levels.

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=> People are really interested in being updated about the trend of their invested
stocks immediately, throughout all ranges of income.

This figure indicates whether not being able to check in on a portfolio makes
people feel worried, based on various income ranges.

“Agree” accounts for the highest number of choices (166/482 people in total),
followed by “neutral” with 155/482 people in total. In opposition, with 15/482
people in total, “totally disagree” is the least chosen one.

At the lower income range, people mostly agree with the statement, while the
number of people who disagree is the lowest. The skewness of the figures in
these ranges of income is negative.

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At the higher income range, people’s choices are distributed equally to different
levels, however, the figures in these income ranges are still fairly negative.

=> Based on various income ranges, people mostly have the tendency to be
worried when they are not able to check in on their portfolio.

This graph describes whether people are afraid if they are the last one to know
about relevant news of their portfolio.

189/482 people in total agree with the statement, taking up the most of all 5
levels, while only 6/482 people in total totally disagree with this statement,
which is the lowest.

For the lower income range (under 5 million VND to 20 to 30 million VND),
still the highest number of choices is for the “agree”.

11
For the other income range, the choices of people are dispersed to all 5 levels.

=> People with whichever income range they are in, all seem to be afraid of
being the last one to know about news related to their portfolio.

This bar chart illustrates whether it bothers people with or without investment
experience when they do not have the news about their investment.

In both cases, people mostly agree with the statement (253/482 people in total),
followed by the number of people who totally agree (147/482 people in total).
In contrast, not many people totally disagree or disagree with the statement
(4/482 and 10/482 people respectively).

In both cases, the graph has a negative skewness.

=> People, whether they have investment experience or not, tend to be bothered
when they do not have the news about their investment.

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The graph above shows whether people, with or without experience in
investing, are interested in being updated about their invested stocks’ trend
immediately.

209/482 people in total choose the “agree” level, standing as the highest of 5
levels, while “totally disagree” and “disagree” account for the least with only
6/482 and 16/482 people respectively.

The skewness in both cases is negative.

=> People with or without experience in investing all tend to want to have
updated information about the trend of their invested stocks.

13
The level of anxiety when people do not know about the plan of the businesses
they are having their investment in, whether they have investment experience or
not, is illustrated in the chart above.

People mostly agree with the statement in both cases (171/482 people in total),
while the number of people choosing “totally disagree” is the lowest (11/482
people in total).

With the people that have no investment experience, most of them agree that
they have high levels of anxiety (123/321 people in total), some of them totally
agree with that or stay neutral (76/321 and 103/321 people respectively). There
are not many people who disagree or totally disagree with the statement (4/321
and 15/321 people respectively). The skewness of the bar chart on the side of
people with no experience is negative.

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With people that have investment experience, most people totally agree with the
statement (56/131 people in total), followed by people who agree (43/131
people in total. The number of people who totally disagree or disagree have the
same number of people choosing (7/131 people in each level) and stay at the
bottom. This side of the chart also has the negative skew.

=> People’s level of anxiety when they do not know about any of the businesses
they are investing in are high, even if they have experience in investing or not.

The bar chart above indicates whether people, having investment experience or
not, worry of not being able to check in on their portfolio.

“Agree” is chosen the most by people in the two cases (166/482 people in total),
whereas “totally disagree” is chosen the least (15/482 people in total).

In the case of people not having investment experience, the number of people
who stay neutral and the one who level have approximately the same number of
people choosing (110/321 and 111/321 people respectively).

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In the other case, most people choose “agree” (55/161 people in total), and
“totally disagree” and “disagree” is the least chosen one (9/161 and 10/161
people respectively).

=> People having investment experience or not have the tendency to be worried
of not being able to check in on their portfolio.

The figure above shows if people with investment experience or not, are afraid
of being the last to be informed about things that are relevant to their portfolio.
The most chosen answer in this question is “agree”, in both cases (189/482
people in total), on the other hand, “totally disagree” and “disagree” are the least
chosen answers (6/482 and 11/482 people respectively).
The “neutral” and “totally agree” answers have approximately the same number
of people choosing, in both having experience in investing and not having
(137/482 and 139/482 people respectively).
In both cases, the graph has the negative skew.

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 => With investment experience or not, people tend to be afraid when they are
the last ones to know about the relevant information related to their portfolio.

Std.
N Minimum Maximum Mean Skewness
Deviation
Statistic Statistic Statistic Statistic Statistic Statistic

It bothers you
when you do not
482 1.0 5.0 4.056 0.8021 -0.733
hear news about
your investments

You get anxious

when you do not
know what the
482 1.0 5.0 3.811 0.9649 -0.535
companies you're
investing in are
planning.

You would like to

be immediately
updated about the 482 1.0 5.0 3.932 0.8732 -0.619
trends in stocks
you’ve invested in.

You get worried

when you are not
able to check in on 482 1.0 5.0 3.614 1.0157 -0.414
your portfolio.

It bothers you if
you miss out on 482 1.0 5.0 3.867 0.9136 -0.523

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investment
opportunities

You fear being the

last to know about
news that is 482 1.0 5.0 3.921 0.8782 -0.493
relevant to your
portfolio.

Valid N (listwise) 482

The table above serves us some specific data of the 6 questions handed out in
the survey.

It is obvious that the mean of all 6 questions mostly range around 3.6 to 4.0.

=> That means “agree” is the most chosen answer by people in all 6 questions.

The question “It bothers you when you do not hear news about your
investments” has the most negative skewness (-0.733) and also the highest value
of mean in all 6 questions (4.056). On the other hand, the question “You get
worried when you are not able to check in on your portfolio” has the least
negative skew (-0.414) and also the lowest value of mean in all 6 questions.

=> Of all 6 questions, people agree most with the fact that it bothers them when
they do not hear news about their investments.

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Conclusion
After investigating the Bitcoin bubbles incident and consulting from previous
works, our team has come to a conclusion about the instability of
cryptocurrencies as well as the willingness of the participants in terms of joining
the investments. There is no guarantee that anyone can precisely forecast the
market movements but rather, depending on one’s own predictions or others’
actions to make decisions.

Under a behavioral perspective, investors are driven by either a common trend,

a consequence of the Fear of Missing Out theory, further is Herding behavior or
the “mass delusions” caused by the overconfidence in oneself, an aspect of the
Greater Fools Theory. The psychological assumptions, when being tested, have
led to a conclusion that while both theories leave impacts on the market, the
Herding behavior, or the FOMO theory, might be the main cause of the Bitcoin
Bubbles incident.

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Limitation & Future Scope of Research
Due to a short duration, this research can only cover the behavioral aspect that
affects the Bitcoin market, as well as any cryptocurrencies in general. There
might be other factors related to political, cultural, social perspectives that
influence the price of Bitcoins. Furthermore, due to the limitation in the border
of statistics course, we could only provide some fuzzy relationship between
mentioned aspects.

With that being said, various factors need to be discovered to get a fully
understanding of the Bitcoin operations. Future research is required to examine
the market and develop models under social or political aspects, using more
powerful tools, including econometric.

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Reference
Milyavskaya, M., Saffran, M., Hope, N., & Koestner, R. (2018). Fear of missing
out: prevalence, dynamics, and consequences of experiencing FOMO.
Motivation and Emotion. doi:10.1007/s11031-018-9683-5.

Cross, J. L., Hou, C., & Trinh, K. (2021). Returns, volatility and the
cryptocurrency bubble of 2017–18. Economic Modelling, 104, 105643.

Banerji, J., Kundu, K., & Alam, P. A. (2021). The Bitcoin Bubble: Insights of
Herd Behaviour.

Sun, L. (2011). The Greater Fools Theory And The Bubbles In Chinese Stock
Market: A Behavioral Approach.

Liu, F., & Conlon, J. R. (2018). The simplest rational greater-fool bubble model.
Journal of Economic Theory, 175, 38-57.

MacDonell, A. (2014). Popping the Bitcoin bubble: An application of

log-periodic power law modeling to digital currency. University of Notre Dame
working paper, 1-33.

Global cryptocurrency market charts. CoinMarketCap. (2020). Retrieved

October 1, 2022, from https://coinmarketcap.com/charts/

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