Herding Behaviour in Cryptocurrency Markets: Behavioural Trading Strategy Design and Decision Risk Quantification

Abstract

Cryptocurrency markets are often volatile with no central authority as a decentralized system based on cryptography makes the records, making investors in this sector particularly susceptible to reliance on social cues rather than fundamentals. This paper uses a qualitative study design that collects 1000 text-rich entries in social media and forum posts to determine herding behaviour in cryptocurrency markets, particularly behavioural trading strategy design and decision risk quantification. This data is collected using a purposive sampling strategy that selects texts published during periods of extreme volatility, such as during Bitcoin crashes and meme coin surges between January 2021 and January 2025. Following a thematic analysis of this data, the results indicate that herding behaviour among investors is mostly caused by fear of missing out (FOMO), emotional contagion, influencer reliance, collective rationalisation of risk, and post-herd regret and justification. These social cues lead to investors relying on them to value cryptocurrency assets instead of conducting fundamental analysis, which would be beneficial.