The Impact of Behavioral Factors on the Actions of Investors in Cryptocurrency Market

The cryptocurrency market is a modern investment platform based on blockchain technology, with a decentralized system, which attracts numerous investors because of potential high returns. Since these markets are relatively new, individual biases are assumed to strongly influence investors’ behavior and further investment decisions. Research was conducted using a survey analysis among 109 cryptocurrency investors in Croatia. In order to obtain the results, partial least squares structural equation modeling was used. It was found that herding and overconfidence positively affect investment intention. This implies that investors are more likely to engage in cryptocurrency investments if they follow the crowd and if they tend to overestimate their skills and knowledge. Conversely, prospect theory negatively impacts investment intention, indicating that risk aversion - especially in these emerging markets - reduces investment intentions due to concerns about potential loss. The main limitation is the sample size, which could have been larger if the data collection period had been longer. Additional behavioral factors, as well as personality traits, can be taken into consideration for future research, since investment intention is potentially defined by many other variables. Since there is no similar research for Croatian cryptocurrency investors, this research contributes to the literature by expanding and confirming some of the previous conclusions. The results help to understand the psychology of investors in cryptocurrency markets in order to improve their investment strategies. Additionally, educational programs can be developed, and trading platforms can be improved for the benefit of investors.