What Is the Role of Confirmation Bias in a Crypto Death Spiral?

Confirmation bias plays a crucial role in a crypto death spiral by causing investors to selectively seek out and interpret information that confirms their existing fears and negative beliefs about an asset. Once a downward trend begins, investors with a bearish outlook will focus on negative news, social media posts, and price charts that validate their decision to sell.

This cognitive bias filters out any positive or countervailing information, creating an echo chamber of negativity. As more investors fall prey to confirmation bias, the collective belief in the asset's demise strengthens, leading to more aggressive selling and a faster, more severe death spiral.