The crypto market is driven by a lot of things, including partnerships, technical and fundamental analysis, investor sentiment, and of course news and scoops from social media. However, some other elements also come into play, such as FOMO and FUD. But before you get FOMO or FUD, understand why they occur.
What Are FOMO and FUD?
FOMO or “Fear of Missing Out” is termed as anxiety that an exciting or interesting event may currently be happening elsewhere, and you might miss it. In crypto terms, it is an emotional strain that forms an obsessive concern that an investor might just have missed an opportunity of profit.
Similarly, FUD refers to “Fear, Uncertainty & Doubt” – an investor sentiment caused by unchecked facts, rumours, news of poor editorial standards, and notably, prominent personalities expressing concerns or regret about an asset.
FOMO and FUD are Natural Investor Sentiments
Of course, investing is mentally as well as emotionally straining! And now that alternative.me has started operating its Fear & Greed Index (a spinoff to CNN’s Fear & Greed Index that swings with the wind of investor sentiment) based on Multifactor Crypto Market Sentiment Analysis, it’s important to understand why the crypto market behavior is becoming emotional.
But before you panic about FOMO, FUD, or whatnot, here are our key takeaways on this topic:
1. Experiencing FOMO and FUD are natural to investors. However, procrastinating about negative outcomes with unrealistic instances in your mind will lead to anxiety, and at the worst, poor investment decisions.
2. Seeking opinions from trusted financial advisors and investment practitioners will help you design strategies that are attuned to your long-term financial goals. Because avoiding FOMO is also an emotional game!
3. If you are considering complex investment strategies – notably that are not tested – never miss out on asking your advisor, “How can I better manage my portfolio without getting overwhelmed by FOMO or FUD?”
FOMO and FUD Have Negative Impacts on Market Manipulation
As an example, let’s bring in the Fear & Greed Index. On 11th May 2021, the price of Bitcoin closed at $56,704, while the FOMO index was at 61, denoting Neutral and Greed. The landscape changed on 12th May, when it dipped to $49,150, one of its biggest falls within 24 hours. The FOMO index, in contrast, soared to 68, which only the following day collapsed with investor sentiment.
Similar patterns were also observed when prices witness a sharp decline. This indicates that when FOMO hits at a large scale, first the crypto moves, and then investor sentiment.
How To Avoid FUD And FOMO
If you are FOMOing (yes, that’s what investors say), the consequences can often become serious, not just for you, but for the market. Being an investor, you might have experienced it as well, that FOMOing leads to irrational thoughts that result in unreasonable decisions in trading. In fear of an asset’s further decrease, investors often sell out their holdings, which further affects its market value, especially when FOMO hits with large numbers of traders.
Here’s how investors can overcome FOMO and FUD:
If you are new to crypto trading or have experienced exponential growth, your mind can be vulnerable to FOMO and FUD. And once you let them overtake your calculative mind, you start worrying about not riding the wave.
- Avoid FOMO and FUD; This is an Emotional Practice
The key to any investment is in-depth research. But too much information, especially surrounding words and not numbers, can be terrible. True during downturns, it’s easy being overcome by instincts and making poor decisions.
- Diversify Your Assets and Trade Within Your Means
No matter how exponentially an asset soared, you should “never invest more than what you can afford to lose!” Similarly, investors prefer “not keeping all eggs in one basket” by diversifying portfolios with long-term holdings.
- Long-Term HOLDing is The Best Practice
Irrespective of financial markets, holding assets for the long term is a great investment strategy. In crypto as well, investors who are HOLDing for the long term tend to avoid FOMO and FUD when minimal changes happen in the market.
What makes cryptos vulnerable is the fact that they can be manipulated. When dips hit, FOMOing investors end up in losses. However, getting rid of FOMO isn’t easy! But what better way can there be than keeping yourself updated with the Mudrex Blog with the latest trends, news, and analysis in the cryptocurrencies, blockchain, and Bitcoin space.
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