Definition ∞ Investor risk aversion describes the preference of investors for investments with lower uncertainty and more predictable returns over those with higher potential returns but also greater volatility. In the digital asset market, this behavior often leads investors to gravitate towards more established cryptocurrencies, stablecoins, or regulated investment products. It reflects a psychological tendency to avoid financial loss. This prevailing sentiment can shift market capital flows.
Context ∞ During periods of market instability or regulatory uncertainty, news reports frequently highlight an increase in investor risk aversion, often leading to capital flight from speculative assets. This shift typically manifests as increased demand for assets perceived as safer or a reallocation back into traditional financial instruments. Understanding investor risk aversion is key to interpreting broader market sentiment and anticipating potential price movements.
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