What is FOMO in the crypto market?

What is FOMO (fear of missing out)?

The term FOMO stands for fear of missing out and is a psychological phenomenon in which people fear missing out on something. In everyday life, this mainly concerns social events, such as parties or other fun activities, but in the crypto world, FOMO is a phenomenon in which traders are afraid of missing out on opportunities. This feeling is especially strong when they do not own a crypto, but it is rising sharply and they think they see a profitable investment opportunity. The feeling of FOMO in crypto trading can lead to hasty decisions, causing traders to make ill-considered financial decisions and take more risk by buying cryptocurrencies at the wrong times.

A typical example of FOMO is when a friend enthusiastically tells you that he invested $500 in a new cryptocurrency last week and that this amount has now grown to $3,000. He explains why he believes in the project and says that you should get in on it too. You remember hearing about this coin before, but you didn't do anything because you were unsure. Now you feel regret and pressure to join in. Without further research, you buy in on the same day, afraid of missing out again. But the price turns out to be at its peak and quickly drops. You lose money, purely because you acted out of FOMO.

Key Takeaways

• FOMO stands for “Fear of Missing Out” and causes investors to act out of fear of missing out on profits.
• In the crypto market, FOMO is often caused by hype on social media and rising prices.
• FOMO in crypto can lead to rash decisions and potential losses.
• By recognizing FOMO and dealing with it consciously, investors can make rational choices.

Where does FOMO come from?

Fear of missing out (FOMO) in the crypto world mainly comes from social pressure exerted through social media platforms such as Twitter, Reddit, Telegram, and other crypto communities. These platforms make it easy to share information about the latest crypto projects and price movements. Users see crypto experts talking about predictions and memes circulating about huge profits, which makes investors feel pressured to jump in quickly without doing their own thorough research.

In addition, the 24/7 nature of the crypto market reinforces the FOMO phenomenon. In traditional markets, investors can only trade for a limited time, allowing them to reconsider their choices during closing hours. In the crypto market, this can make many traders feel like they are missing out on something every second. The volatility of the crypto market makes it even more difficult to remain calm and make informed decisions.

Stories of traders who “accidentally” made a profit by getting in early receive a lot of attention and can put pressure on investors to seize the next “big opportunity” without taking enough time to evaluate the risks and actual benefits/strengths of a cryptocurrency.

What is FUD?

FUD stands for Fear, Uncertainty and Doubt. Like FOMO, FUD plays on emotions: FOMO makes you buy crypto to avoid missing out on profits, FUD makes you afraid of losing crypto. Both lead to impulsive and irrational decisions. FUD in the crypto market is often deliberate, for example, fake news or overly negative reports about a cryptocurrency, purely to cause the price to fall. FUD can quickly become a major factor, especially on social media, particularly when shared by influential figures. As with FOMO, you can prevent FUD by informing yourself well and checking sources before making decisions.

What is the consequence of FOMO?

One of the biggest consequences of FOMO is the impulsive purchase of crypto without doing sufficient research, which could potentially lead to losses. This mainly happens with inexperienced investors. They can get carried away by hype, causing them to invest in projects with little fundamental value, just to “be part of it.”

These impulsive purchases are one of the reasons for the high volatility in the market. If many people jump in because of fear of missing out (FOMO), the price of a cryptocurrency can rise, but when the hype subsides and multiple investors realize that they have bought the crypto without thorough research, prices can quickly collapse again.

The consequences of FOMO are therefore often negative financial results and stress for investors who are unaware of it. It is therefore essential to recognize FOMO and deal with it consciously.

FOMO during a bull market

During a bull market, cryptocurrency prices can rise sharply over a longer period of time. Enthusiasm among investors grows and the positive trend attracts many new buyers, who, fearing further losses, decide to buy in stages (a typical case of FOMO). As prices continue to rise, the market becomes increasingly saturated, as everyone seems to be getting in on the action: from your hairdresser to your uncle. Until there are no more new buyers, causing sentiment to reverse: sudden drops occur as people take profits and panic sets in. Latecomers are particularly at risk, as they often buy when the price has already peaked.

What can you do about FOMO?

Fortunately, there are several ways to avoid FOMO in the world of crypto. The most important way is to always do sufficient research on a project before investing in it. For example, you can look at the fundamental aspects of the cryptocurrency, such as the team behind the project, the use case of the coin, the technology, or perform a technical analysis on the coin. This way, you can determine for yourself whether the hype surrounding the cryptocurrency is justified or whether you are just following a temporary trend.

In addition, you can prevent FOMO by sticking to a clear investment strategy so that you can keep your emotions out of your decisions. For example, you can determine a strategy in which you set how much you are willing to invest, at what price you want to buy, and when you might want to sell. This leads to more control over your decisions and prevents impulsive decisions.

Final Thoughts

Fear of missing out (FOMO) is a common phenomenon in the crypto world that can lead to impulsive and risky investments. By becoming aware of this emotion, doing thorough research, and following a clear strategy, you can prevent FOMO and protect yourself from unnecessary losses.