Anchoring Effect: The First Price You See Becomes Your Anchor

In 1974, Tversky and Kahneman conducted a famous experiment: they asked participants to spin a wheel of fortune (marked with numbers 0–100), then asked them “What percentage of UN member nations are African countries?” The results were striking: people who landed on 10 estimated an average of 25%, while those who landed on 65 estimated an average of 45%.

A completely irrelevant random number significantly influenced people’s judgment of a factual question. This is the Anchoring Effect—when making numerical judgments, humans are powerfully influenced by the first number they encounter, even when that number has no connection to the judgment target.

In crypto markets, anchoring is everywhere: your first encounter with BTC at $30,000 makes 30K your “anchor”—every subsequent price seems “expensive” above 40K and “cheap” below 20K, but all these judgments are biased relative to the 30K anchor, not based on BTC’s actual value.

Core Mechanisms: 5 Drivers of Anchoring

Mechanism 1: Initial Anchor—The First Number Matters Most

The most powerful form of anchoring is the initial anchor: the first price information you encounter becomes the baseline for all subsequent judgments.

Typical initial anchors in crypto:

• Entry price anchor: The price at which you first bought BTC becomes your anchor. Someone who entered at $30K thinks $50K is “too high”; someone who entered at $50K considers $50K “normal” and $30K “cheap”
• All-time high anchor: BTC peaked at $69K—this number becomes everyone’s anchor: “BTC should return to $69K for it to be normal”
• Media headline anchor: A headline like “BTC breaks $100K” makes you feel at $70K there’s “still room to grow,” because $100K has become your new anchor
• KOL call anchor: Some influencer says “ETH reaching $10K is a conservative estimate”—$10K becomes your anchor

The terrifying aspect of initial anchors: they require no rationality whatsoever. Random numbers also produce anchoring effects—meaning any price information you encounter in crypto could become an anchor for your judgments, regardless of whether that information is credible.

Mechanism 2: Insufficient Adjustment—Judgments Shift From Anchors, Not From Independent Evaluation

The second step of anchoring is insufficient adjustment: you adjust from the anchor, but the adjustment is never enough.

Kahneman’s explanation: when anchored, your brain asks “is this number too high or too low?” then adjusts. But adjustments tend to be conservative—you move some distance from the anchor and stop, rather than moving to the truly reasonable value.

BTC was at $30K (your anchor), now rises to $50K. Your reasoning: “$50K is 67% above $30K (evaluating from anchor), the gain seems big → maybe a pullback is coming.” But rational analysis should ask: “What is BTC’s intrinsic value? Is $50K above or below that value?”—you never conducted an independent evaluation; you merely made insufficient adjustments from the anchor.

Mechanism 3: Multiple Anchors—The Market Sets a Stack of Anchors

In crypto, you’re simultaneously influenced by multiple anchors:

• Entry price anchor: your cost basis
• All-time high anchor: BTC’s historical peak
• Market consensus anchor: analysts’ average price targets
• Social media anchor: the most-cited price on Twitter
• Technical indicator anchor: support/resistance levels as “anchored numbers”

The combined effect: your price judgment becomes a weighted average of multiple anchors, not an independent value assessment. When you feel “BTC at $40K is a reasonable price,” that judgment may be a blend of the $30K entry anchor + $69K ATH anchor + $50K analyst forecast anchor—not an evaluation based on BTC’s true value.

Mechanism 4: Anchor Persistence—Even Knowing an Anchor Is Wrong, It Still Affects You

The most frustrating feature of anchoring is persistence: even when told the anchor is wrong, random, or irrelevant, it still influences your judgment.

Experiments prove: telling participants “that number was randomly generated, please don’t be influenced by it”—results show the anchoring effect persists, only slightly weakened.

In crypto, this means: even if you know “$69K all-time high doesn’t represent BTC’s fair value,” $69K still operates subconsciously as a reference point, biasing every BTC price judgment you make. You can’t eliminate anchoring by “telling yourself the anchor is wrong”—you need other methods to counter it.

Mechanism 5: Self-Anchoring—You Set Anchors for Yourself

Beyond external anchors, you also generate self-anchoring:

• Target price anchor: You set “sell BTC at $100K”—$100K becomes your anchor. Even if BTC should be evaluated for selling at $80K (market conditions changed), you still wait for $100K
• Expected return anchor: You set “profit 50% on this trade”—50% becomes your anchor. When you actually gain 30%, it feels “not enough,” even though 30% is already a solid return
• Stop-loss percentage anchor: You set “stop-loss at 10% loss”—10% becomes your anchor. Even when market volatility has changed (requiring wider stop-loss space), you mechanically apply 10%

The danger of self-anchoring: it originates from you, so it feels like “rational planning.” But many self-anchors are just crystallized psychological preferences—not validated by sufficient market testing.

Crypto Applications: 5 Pricing Distortions from Anchoring

Distortion 1: ATH Anchor → “Recovery Fantasy”

BTC’s all-time high of $69K became a massive anchor. Many who bought at $60K framed their thinking as: “BTC reached $69K before, so it can return to $69K—I just need to wait to break even.”

But $69K was the product of 2021’s extreme liquidity environment—it doesn’t represent a price BTC can reach under all conditions. Your judgment is biased by the $69K anchor—you should ask “what’s BTC’s reasonable value range under current macro conditions,” not “can BTC return to its all-time high.”

Distortion 2: Entry Price Anchor → Incorrect Stop-Loss/Take-Profit

You bought BTC at $40K; $40K becomes your anchor:

• BTC drops to $30K: you feel “lost 25%, too much”—but 25% is calculated relative to your anchor ($40K), not relative to BTC’s true volatility range
• BTC rises to $50K: you feel “gained 25%, pretty good, might sell”—but BTC bull markets typically deliver far more than 25%

Entry price anchors make you evaluate gains and risks using percentages relative to the anchor, rather than absolute market logic. A 25% pullback in a BTC bull market is a normal secondary reaction, but under anchoring it’s perceived as a “severe loss.”

Distortion 3: Altcoin “Benchmark Pricing” Distortion

Altcoin pricing is frequently distorted by anchoring:

• “ETH reached $4,800 in the last bull market, so this new L1 token should hit at least $500”—$4,800 ETH becomes the altcoin pricing anchor
• “BTC dominance once reached 70%, so it will return to 70%“—historical data becomes the judgment anchor
• “Last bull cycle altcoins averaged 20x gains, so this cycle will too”—historical multiples become the expectation anchor

None of these anchors are based on the project’s own value—they’re just memories of “what happened last time” influencing your judgment.

Distortion 4: New Token “Reference Pricing” Distortion

When new tokens list on exchanges, pricing relies almost entirely on anchoring:

• The exchange sets a “reference price”—this becomes every trader’s anchor
• The market benchmarks against “similar project prices”—if comparable projects have a $1B market cap, the new project gets anchored around “should be near $1B”
• Initial circulating supply becomes an anchor—“total supply 100M, initial circulation 20M” figures affect your perception of fair price

These anchors don’t reflect the new project’s true value—they merely provide a “convenient reference point” so your brain doesn’t have to do the harder work of independent evaluation.

Distortion 5: Mechanical Stop-Loss Anchoring

Many people set stop-losses through mechanical anchoring:

• “Stop-loss at 10% below entry price”—10% is an anchor, not a calculation based on market volatility
• “Stop-loss if key support breaks”—support itself is an anchor that may have already失效
• “Maximum loss $2,000”—$2,000 is an anchor unrelated to market logic

Correct stop-losses should be based on ATR (Average True Range) rather than percentages—because BTC’s volatility varies dramatically across phases. 2×ATR in a bull market might be $3,000, while in a bear market it could be just $1,000. Mechanical 10% stop-losses get triggered by normal pullbacks in bull markets.

Practical Scenarios

Scenario 1: Breaking the Entry Price Anchor—Re-evaluating BTC

You bought BTC at $40K, now it’s at $30K. Anchoring makes you feel “I’ve lost 25%.” Breaking the anchor:

1. Assume you don’t hold BTC: If you had $30K cash now, would you buy BTC at current prices? This detaches you from the entry anchor for a current-market-condition assessment
2. Review BTC’s historical volatility range: BTC dropping from $40K to $30K is a 25% decline, but in BTC history, 30–50% bull-market pullbacks are normal. Your “25% loss” perception is amplified by the anchor
3. Evaluate BTC’s current fundamentals: On-chain activity, institutional buying, macro environment—ignore your entry price, focus solely on BTC’s own state

If all three steps point to “BTC prospects are good,” continue holding or even add; if they point to “BTC prospects are worsening,” cut losses—regardless of entry price.

Scenario 2: Identifying Altcoin Pricing Anchors

When evaluating a new L1 project, identify your pricing anchors:

• Is your expected price referencing ETH’s historical price? (ETH anchor)
• Is your expected gain referencing last cycle’s average multiplier? (Historical multiplier anchor)
• Is your “reasonable market cap” referencing similar projects? (Benchmark anchor)

If these anchors are influencing your judgment, force an independent valuation: base it on this project’s revenue, user count, developer activity, and technical differentiation—not on “what happened last time.”

Scenario 3: Dynamic ATR-Based Stop-Loss vs. Percentage Anchors

Replace percentage stop-losses with ATR-based ones:

1. Calculate BTC’s current 14-day ATR (assume ATR = $2,500)
2. Stop-loss distance = entry price - 3×ATR = entry price - $7,500
3. Dynamically adjust stop-loss as ATR changes—widening when volatility increases, tightening when it decreases

This breaks the “fixed percentage” anchor, letting stop-losses follow market conditions rather than mechanically orbiting around the entry price.

Common Misapplications

Misapplication 1: Believing anchoring only affects “irrational people.” Anchoring is a fundamental human cognitive mechanism—even experienced professionals are affected. Experiments prove real estate appraisers are significantly anchored by randomly provided “reference prices”—these are professional valuation experts who still can’t escape anchoring.

Misapplication 2: Trying to eliminate anchoring through “rational thinking.” Research clearly shows: even when told the anchor is wrong and random, it still biases your judgment. Countering anchoring isn’t achieved by “telling yourself not to be influenced”—it’s done by setting new anchors or using independent evaluation methods.

Misapplication 3: Treating technical support/resistance as “fair prices.” Support and resistance are products of collective market anchoring—they represent “many people have anchors at these prices,” not “these prices are BTC’s fair value.” Use support/resistance in combination with fundamental assessments, not in isolation.

Misapplication 4: Ignoring positive anchors’ impact. Most people focus on anchoring that causes underestimation (anchored to low prices), but overlook negative impacts from high anchors—those anchored to $69K feel at $40K there’s “huge upside,” potentially becoming overly optimistic.

Misapplication 5: Using “anchoring effect” to explain all price judgment biases. Anchoring is a specific mechanism (judgment biased by initial numbers), not a catch-all term for all cognitive biases. Price judgment distortions can also come from confirmation bias, overconfidence, loss aversion, and other mechanisms—don’t attribute everything to anchoring.

Summary

The essence of anchoring: the human brain depends on the first number encountered as a starting point when making numerical judgments, then makes insufficient adjustments. In crypto, your entry price, all-time highs, analyst forecasts, KOL calls—every piece of price information sets anchors that skew your judgment.

The core method to counter anchoring isn’t “telling yourself not to be influenced” (that doesn’t work), but replacing anchor-adjusted reasoning with independent evaluation: assess BTC’s value from scratch, use ATR instead of percentage stop-losses, value projects on fundamentals rather than historical prices, and periodically reset your judgment framework.

Your brain will automatically set anchors—this is unavoidable. But you can actively set better anchors (e.g., replacing historical prices with fundamental valuations) and use structured decision processes to reduce anchoring’s impact. Remember: your judgments are always biased around some anchor—the key is choosing the right one.

For more practical methods, see Demonjoy Trading.