Behavioral biases and crypto trading decisions among Nairobi retail traders: moderating role of financial knowledge.

Abstract

The rapid rise in cryptocurrency adoption in emerging markets such as Nairobi, Kenya, created a volatile trading environment in which retail traders were highly vulnerable to behavioural distortions. The purpose of this study was to examine the influence of key behavioural biases, traders' overconfidence, risk aversion, anchoring, and the disposition effect on crypto trading decisions among retail traders, and to assess the moderating effect of financial knowledge on these relationships. Drawing on theoretical foundations such as Behavioral Finance Theory, Heuristic Theory, and Adaptive Market Efficiency Theory, the study achieved its objectives. The study adopted a positivist research philosophy to examine the impact of behavioral biases on crypto trading decisions among retail traders in Nairobi County. The study carried out between March and April 2026 employed an explanatory research design to examine the relationship, targeting 733,300 active cryptocurrency users in Nairobi County. 400 selected respondents completed a structured questionnaire as part of a quantitative research strategy. The suggested hypotheses were tested using inferential and ordinal regression analysis. The study established that overconfidence, anchoring bias, and disposition effect significantly increased the likelihood of cryptocurrency trading decisions among retail traders in Nairobi County. Risk aversion revealed a negative influence. The Financial knowledge revealed a moderating role between the behavioral biases and cryptocurrency trading decisions. The results explained the relationship between behavioral biases and cryptocurrency trading decision-making and offered empirical evidence on the predominant behavioral determinants influencing cryptocurrency trading decisions in the Kenyan setting. The findings provided empirical evidence on the main behavioral factors impacting cryptocurrency trading decisions in the Kenyan context and clarified the connection between behavioral biases and cryptocurrency trading decision-making. By guiding the creation of focused financial education initiatives and investor-protection measures to encourage logical, stable, and knowledgeable participation in the cryptocurrency market, the findings had practical implications for retail traders, financial advisors, legislators, and regulators. Additionally, by applying theory to the new field of virtual assets in developing economies, the study added to the body of literature on behavioral finance.