This study takes a comprehensive look at behavioral finance, paying close attention to its psychological foundations and how they apply to cryptocurrency markets. It starts by revisiting key principles of traditional finance, particularly the rational investor model and the Efficient Market Hypothesis. While these models have shaped financial theory for decades, they struggle to account for consistent market irregularities, price bubbles, and financial crises. That’s where behavioral finance comes in, offering a different perspective through concepts like bounded rationality and Prospect Theory. These ideas challenge the belief that investor decisions are always fully rational.

In the second part, the study examines the mental and emotional drivers behind investor behavior. It explores how individuals perceive information, what captures their attention, and the shortcuts—or heuristics—they rely on when making choices. Cognitive biases, emotions, and social pressures are also explored, showing how they influence decisions. Though these influences begin at the individual level, they often scale up and produce noticeable effects across entire markets.

The final section focuses specifically on cryptocurrency markets. These markets offer a unique environment to observe behavioral tendencies due to their high volatility, ongoing regulatory uncertainty, round-the-clock trading, and the strong presence of individual investors. Such conditions tend to amplify behavioral distortions. The study highlights several important factors—herding behavior, investor sentiment, leverage usage, and uneven responses to news—that help explain the sharp and frequent shifts in cryptocurrency prices.

Overall, the study concludes that cryptocurrency price movements can’t be fully explained by traditional economic fundamentals alone. Psychological and social influences play a central role, reinforcing the importance of behavioral finance in making sense of today’s financial markets.