How does panic spread among retail investors?
When market manipulators utilize panic, they not only need to create the initial source of panic but also use various channels to accelerate the spread of panic. Here are several main mechanisms of transmission:
- Social networks
Social networks have a high influence and transmission speed in modern society. In the financial market, social networks have become an important platform for retail investors to communicate and obtain information. When negative news about a coin emerges, this information quickly spreads on platforms such as WeChat Moments, WeChat groups, and Weibo.
1.1 Herd behavior
On social networks, the spread of information often carries a strong herd effect (herd mentality). When a "retail investor" shares their panic or selling behavior, it may resonate with and be imitated by their friends or followers. This effect spreads rapidly, causing panic to spread to a wider range in a short period of time.
1.2 Influence of opinion leaders
Opinion leaders on social networks (such as bloggers, KOLs) have significant influence on retail investors. When these opinion leaders make negative comments on a coin or market trend, their large fan base can be influenced, leading to panic and corresponding trading behavior. Market manipulators may manipulate the statements of these opinion leaders to achieve their own goals.
1.3 Fragmented information
The dissemination of information on social networks is often fragmented. Retail investors receive a large amount of unverified information in a short period of time, which may be contradictory or exaggerated. Due to the difficulty in discerning the authenticity and reliability of the information, retail investors are prone to panic in uncertainty, further exacerbating market volatility.
- Traditional media
Traditional media such as television, newspapers, and financial websites also play an important role in the spread of panic. These media outlets usually have high credibility and can quickly attract widespread attention.
2.1 Timing of news reports
Market manipulators may choose to release negative news through traditional media at critical moments. For example, before or after the Federal Reserve's interest rate meetings or Bitcoin halving, they may release negative comments or predictions through the media to create market panic. Once reported, this news quickly reaches a wide range of investors, causing retail investors to feel pessimistic about the market outlook and triggering a chain reaction of selling.
2.2 Media/institutional commentary and analysis
Commentators and analysts from various media/institutions have significant influence in the market. When these so-called experts/professionals make pessimistic market analyses in the media, it reinforces retail investors' panic. Market manipulators may cooperate with the media/institutions to arrange the release of these comments and analyses in advance to manipulate emotions and further guide the market.
2.3 Amplification effect of negative reports
Traditional media's reporting of negative news often triggers an excessive market reaction. For example, when operational issues of an exchange are reported, the media may continue to track and report on them, amplifying the negative sentiment. Under continuous negative reporting, retail investors gradually lose confidence in the platform's coin and choose to panic sell.
- Push notifications from market/trading apps
Market/trading apps have real-time information push capabilities. When the market experiences significant fluctuations, these apps promptly push relevant messages to users, playing an important role in the spread of panic.
3.1 Real-time price fluctuations
Market/trading apps display real-time market price fluctuations. When a coin experiences a significant drop, retail investors' emotions are directly affected by the immediate price changes they see on these apps. This real-time price information can intensify retail investors' panic, prompting them to make trading decisions quickly.
3.2 Message push
Market/trading apps usually push market news, company announcements, expert comments, and other information. When this information contains negative content, it further reinforces retail investors' panic. Market manipulators may use the information push function of market/trading apps to guide market sentiment by releasing negative news, for example, by cooperating with market/trading app companies to prioritize the push of specific negative news to create panic.
3.3 Social functions
Users can discuss and exchange information on social media platforms. This function allows negative emotions to spread quickly among users. For example, when a coin experiences a decline, users sharing their panic and selling behavior on the platform can resonate with and be imitated by more users, further intensifying selling pressure in the market.
- Friends and family
Retail investors are often influenced by friends and family, which also plays an important role in the spread of panic.
4.1 Discussions within social circles
During significant market fluctuations, investors discuss market conditions with friends and family. This discussion amplifies negative emotions, leading to more people experiencing panic. For example, when a retail investor sells a coin due to panic, their friends may be influenced and consider the coin too risky, leading them to take similar actions.
4.2 Group effect
When facing market uncertainty, retail investors often seek confirmation and advice from friends and family. When the entire social circle shows pessimistic sentiment, individual investors are more likely to experience panic and make decisions to follow the trend. Market manipulators can indirectly influence a larger range of retail investors by guiding the emotions of key investors.
4.3 Emotional resonance
Investment decisions involve not only rational analysis but also a significant amount of emotional factors. When friends and family around an investor exhibit strong panic, the individual is likely to experience emotional resonance and make irrational investment decisions. This emotional resonance rapidly spreads panic over a larger range.
- Statements from political figures
Statements from political figures have a significant impact on market sentiment, as their remarks can quickly reach a wide range of investors and directly affect short-term market fluctuations.
5.1 Policy statements
When political figures make statements related to economic policies, market regulation, international relations, etc., the market often responds rapidly. Market manipulators may use these statements to influence the market by making arrangements in advance. For example, when a political figure makes a pessimistic prediction about the economic outlook, market manipulators may sell coins in advance, using retail investors' panic to intensify selling pressure in the market.
5.2 Sudden remarks
Sudden remarks from political figures often trigger significant market fluctuations. In such cases, market manipulators can amplify the impact of these remarks through manipulating media coverage or social network dissemination, further causing market panic. For example, when a high-ranking official makes a negative comment on the market outlook in a public setting, market manipulators can quickly spread this message through various channels to create market panic.
- Real-time market fluctuations
Real-time market fluctuations are direct triggers for the spread of panic, especially when the market experiences significant volatility, leading to amplified emotional fluctuations among investors.
6.1 Sudden fluctuations
Sudden significant market fluctuations often trigger panic among retail investors. For example, when a coin experiences an abnormal and significant drop in a short period, retail investors may believe that there is a major negative catalyst in the market, leading to rapid selling of the coin. In such cases, market manipulators may create sudden fluctuations by engaging in large-scale selling to induce retail investors to follow suit.
6.2 Chain reaction
Real-time market fluctuations trigger chain reactions, rapidly spreading panic. For example, when a significant index experiences a sharp decline, retail investors worry about the overall downside risk of the market, leading to a wave of selling of the coins they hold. This chain reaction intensifies market volatility, causing panic to spread over a larger range.
6.3 Automated trading systems
In modern cryptocurrency markets, automated trading systems for high market value coins (such as high-frequency trading, algorithmic trading) have a significant impact on market fluctuations. When the market experiences abnormal fluctuations, these systems automatically execute a large number of trades, intensifying market volatility. For example, when the market experiences a significant drop, automated trading systems trigger stop-loss orders, further intensifying selling pressure in the market and rapidly spreading panic.
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