How Psychology Drives Market Cycles

Uptrend

Optimism is widespread during a bull market. Rising prices generate excitement, and neurobiology tells us that this triggers the brain's reward system, releasing the neurotransmitter dopamine. 

Emotional phenomena like FOMO (fear of missing out) tend to amplify this trend. FOMO stems from the brain’s social reward pathways, as we’re physically wired to seek inclusion and avoid missing opportunities. Social media platforms like X and Reddit can exacerbate FOMO by showcasing stories of massive gains, encouraging others to buy assets without fully understanding the risks.

Dogecoin, Shiba Inu, and most recently, the TRUMP and MELANIA meme coins serve as prime examples. The value of meme coins, in most cases, is driven by speculative hype and viral trends rather than intrinsic value. Traders are often swept up in the euphoria, ignoring warning signs like overvaluation or unsustainable growth.

Several neurobiological processes coincide to create this unchecked optimism, which can lead to financial bubbles, where prices far exceed an asset’s true value. When the bubble bursts, the market enters a downtrend, often triggering a cascade of negative emotions.$BTC $ETH $XRP #MarketPullback