February 26, 2024
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FUD and FOMO – The Two Feelings Crypto Investors Must Learn to Manage to Navigate Risky Waters

Diametrically opposed attitudes and viewpoints have emerged as interest in cryptocurrencies has surged and more and more people have become familiar with the ways to buy Bitcoin on popular cryptocurrency exchanges. However, despite their impressive traction and numerous informative resources, people still struggle with this concept’s complexities. Needless to say, the technology underpinning the cryptocurrency, the dynamics of market forces, the factors impacting an asset’s price trajectory, and other related aspects demand profound research and a sound understanding of finance and economics. And even with excellent trading skills and reasonable apprehension of the crypto market, succumbing to a range of emotions that misleadingly prompt you to make a hasty investment or impulsive sale is possible.  

FUD and FOMO are emotions that many investors have struggled with or overcome at some point in their lives. While many may not consciously recognize or know how to spot them, they remain common and a significant factor leading to misinformed or poor investment decisions.

Suppose you’ve dealt with powerful urges to make a particular investment only because the asset was gaining popularity. In that case, you may have dealt with psychological triggers that cause many to make precipitated investment decisions. Here is what you should know about FUD and FOMO, their effects on the market, and how to approach them to remove uncertainty from your investments and learn to manage your emotions.

FOMO – the unpleasant side of social media

With the growing abundance of informational resources at the fingertips of crypto-curios individuals, exploring the complex realm of digital money has never been more facilitated or easier. Online platforms such as YouTube and TikTok have emerged as dependable tools aspiring investors use to unravel the intricacies of cryptocurrencies and some of the mystery shredding the concept. It can be challenging for newcomers to grasp the sophisticated underlying technology, the factors that impact investor sentiments, the forces driving market trends, and keeping up-to-date with changing regulatory landscapes, so the importance of these informational tools shouldn’t be underrated.

Nonetheless, this very exposure and heightened accessibility are instrumental in propagating the psychological phenomenon known as FOMO, an acronym denoting the “fear of missing out”. This phenomenon is characterized by nervousness and anxiety arising when a specific asset gains tremendous attention on social media platforms, friendship circles, or cryptocurrency communities. As a result of the intense emotions, many may be inclined to succumb to the temptation to make an irrational decision to avoid being or feeling left out.  

A widespread psychological phenomenon that must be stopped in its tracks

Notably, such emotions are widespread, as evidenced by psychological research and surveys. A study carried out by the Financial Industry Regulatory Authority (FINRA) and the CFA Institute encompassing 2,800 individuals across the U.K., Canada, China, and the U.S. concluded that youngsters are the most prone to make investments out of every other generation, with cryptocurrencies being their go-to assets. A prominent factor contributing to their eagerness and willingness to jump on the crypto bandwagon is associated with their fear of overlooking a profitable investment opportunity that others are taking advantage of. The U.K. is a powerful example in this regard, with 55% of young investors attesting to have invested in an asset due to FOMO. Meanwhile, 50% of surveyed Gen Z investors in the U.S. exhibited similar behavior, whereas 46% in Canada called the same factor the driver for making an investment.

Therefore, if you’ve ever felt a strong urge to place an order on an exchange just to align with the masses prompting a popular cryptocurrency movement, you need to take a step back and analyze your reactions. Determine whether you’re inclined to make a hasty and irrational decision. It would help if you prioritized doing your due diligence over any FOMO-driven action, as you’ll need a deep understanding of the crypto market to overcome deceptive feelings.  

FUD – a significant contributor to mass misinformation   

FUD is often derived from FOMO, representing a phenomenon that prevents investors from developing good trading habits. It stands for “Fear, Uncertainty, and Doubt”. It is often associated with spreading these emotions across social media platforms to influence others’ perceptions and considerations about particular projects or coins. Moreover, it is recognized as having a critical role in the market, at the core of rumors and misleading information circulating in the crypto sphere. Often, FUD is correlated with the urge to panic sell or get rid of specific holdings when there’s a belief or conviction that the asset will drop in price, potentially fueling bear markets.

FUD is more likely to emerge when a bearish moment prolongs in the crypto market, which pushes rumors about government regulation to the top of the list of related examples you should spot and ignore. Other typical FUD-driven examples are unbacked speculation, misinformative content, or negative news articles. On a larger scale, cryptocurrencies’ rise to fame has inevitably garnered a lot of controversy and opposing viewpoints. As a result, you may encounter different pieces of content falsely suggesting that regulatory bodies are to ban crypto, various projects close or specific cryptocurrencies are taken off from a prominent platform, but they’re all bogus.

Some FUD can be aggravated or not true at all, whereas other instances may be based on an accurate and true event or fact. Regardless, bad news and negative feelings propagated across social media platforms about a particular asset may lead to a decline in the value of the investment. The fact that the dissemination of FUD has the power to play with asset price trajectories and generate a domino effect of dropping values is enough reason to learn how to spot it and consider it when determining your next investment move.

None of the approaches mentioned above is your ally, so don’t fear going against the crowd when your intuition and research are guiding you to do so. Nevertheless, if you can anticipate investors’ reactions to different crypto trends, it could hugely benefit your trading strategy. In other words, fear FOMO and keep it at bay, but, when possible, keep a close eye and factor in the potential influence of FUD. 

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