Bitcoin (BTC) critics have returned to a familiar refrain, labeling the cryptocurrency a scam as it struggles to regain the five-figure levels last seen in mid-November.

However, crypto commentator Shanaka Anslem Perera points to a psychological phenomenon rather than a fundamental critique, tying panic selling to the Nobel Prize-winning concept of prospect theory.

The Psychology Behind the “Scam” Label

In a post dated November 17, Perera argued that sharp price corrections often lead retail investors to seek explanations that resonate with their emotional distress. Prospect theory, developed by Daniel Kahneman and Amos Tversky and awarded the Nobel Prize in 2002, posits that losses are felt about twice as intensely as gains, leading investors to label a drastic drop, like a 30-40% decline in Bitcoin’s value, as a scam.

“You need an explanation that matches the intensity of that pain,” Perera stated. “’Scam’ fits perfectly.”
“You need an explanation that matches the intensity of that pain,” wrote Perera. “‘Scam’ fits perfectly.”

Perera asserts that approximately 70% of retail traders who purchase during market highs end up selling at a loss within a year. In contrast, long-term holders of Bitcoin, especially those who maintained their investments for over four years, typically avoid losses, even when buying at the peak of market cycles.

“Every ‘scam’ call is a wealth transfer receipt,” he remarked.
“Every ‘scam’ call is a wealth transfer receipt,” he claimed.

He further cited data indicating diminishing drawdowns over time, from over 90% in 2011 to around 50-60% currently, reflecting a decrease in volatility as the market matures.

Perera’s viewpoint has resonated within the online crypto community. User Gary Krug commented that “calling Bitcoin a scam” usually stems from emotional shock rather than analytical reasoning. He added that the market punishes impatience while rewarding commitment.

The tension between buyers focused on fundamental analysis and those looking for quick profits demonstrates that traders need to adopt a long-view strategy, moving from chasing rapid returns to careful accumulation.

The Current Market Landscape

The phrase “Bitcoin is a scam” finds new life during a period marked by substantial fear in the market, providing detractors with new arguments. Recently, prominent economist Steve Hanke claimed that the cryptocurrency holds no inherent value, branding the current downturn as indicative of a failing system.

Bitcoin has seen a nearly 31% decrease from its all-time high, recently flirting with $85,000 before rebounding to around $87,000. According to veteran analyst PlanB, selling pressure is divided among long-term holders traumatized by market volatility observed in 2021, technical traders analyzing momentum markers, and cyclical investors anticipating further declines.

On the flip side, buyers seeking to capitalize on fundamental values and institutional adoption are enhancing a stalemate until sellers exhaust themselves. This tug-of-war has caused Bitcoin to lag behind traditional investments, reflecting a one-year ROI of -15% compared to Gold’s +65% and the S&P 500’s +14%.

In the long term, however, Bitcoin has significantly outperformed these traditional assets, boasting an ROI of +422% over the past three years versus Gold’s +141% and the S&P 500’s +49%. Since its inception, Bitcoin has delivered over 2 million % returns, while traditional assets like Gold and S&P 500 have achieved +167% and +447%, respectively.