1. Rapid growth and the dopaminergic pathways
There is a good chance the explosive growth of the Trump meme coin at launch was influenced by the brain’s reward system. Factors like the clear connection to Donald Trump, a widely recognized figure of wealth, and the significant media coverage surrounding the coin likely contributed to its initial surge.
FOMO and the general thought of missing out on potential rewards was also a possible driver. This initial surge likely triggered the dopaminergic pathways of traders, releasing dopamine in anticipation of financial rewards and thus creating a feedback loop of excitement and speculation. This phase is also commonly referred to as the euphoria stage, where optimism and excitement fuel a price increase.
2. Herd instinct and mirror neurons
As discussed earlier, mirror neurons often play a role in herd instinct, and, thus, market psychology. The coin’s rapid growth may serve as an example of these neurons in action as individuals, influenced by the emotions and perceived success of others, may make decisions driven by collective sentiment rather than rational, independent analysis. In the case of TRUMP:
Meme culture: Memes and social media activity created a viral buzz that encouraged others to join the trend. Mirror neurons may have amplified positive emotions among traders and investors.
Political and fanbase engagement: Trump’s political supporters and fanbase further propelled the coin’s visibility and adoption. A positive market sentiment is rapidly spread through these social interactions.
This highlights how mirror neuron-powered herd instinct, amplified by social influences like meme culture and fanbase engagement, can drive market behavior.
3. Volatility, panic selling, and the amygdala
Following its initial surge, like most meme coins, TRUMP also experienced a great deal of volatility and sharp price drops. At this stage, traders may experience denial, fear, and anxiety.
Cognitive dissonance may lead many to hold onto their assets despite the market's downturn, hoping for a quick recovery or faith in a particular figure. This conflict between reality and personal belief can result in irrational decisions and financial losses.
Meanwhile, the amygdala, which is responsible for the fight-or-flight response, may amplify feelings of fear and anxiety and thus drive panic selling. The announcement of the competing MELANIA coin likely heightened these emotional reactions and underscores how external factors can strongly influence individual investor behaviors and, as a result, market trends.
Closing Thoughts
Understanding the psychology behind market cycles can be highly valuable, providing better context of market trends to traders and investors. For example, you can observe emotional trends to spot periods of intense pessimism or optimism and see how such emotions affect market prices.
Being familiar with the neurobiological processes that underscore emotional trends, including the role of dopaminergic pathways, structures like the amygdala, and the function of mirror neurons, can give you a more in-depth understanding of market psychology. This may increase your chances of avoiding common psychological pitfalls like cognitive biases, FOMO, panic selling, and cognitive dissonance.
