FOMO usually appears in the market during the developing phase of a price increase. It presents investors with a range of hazards in addition to potentially appealing returns.
At the beginning of December, the cryptocurrency market saw a spike due to a number of encouraging events, which gave investors hope. For the first time since late April 2022, Bitcoin broke beyond the $40,000 barrier and touched the $42,000 price level. In addition to Bitcoin, Ether and Cardano saw consistent increase.
The Bitcoin Fear and Greed Index, which shows a monthly high in “greed” after rising by 8 points in a single week, reflects the improving sentiment. At $1.76 million, institutional money inflows into cryptocurrencies hit a record high.
The cryptocurrency community keeps a close eye on the fluctuations in price of different projects in order to spot profitable ventures and optimize returns. Additionally, traders should be aware that this is a period when FOMO may strike.
What Is FOMO?
FOMO stands for “Fear of Missing Out.” It might be interpreted as the fear of losing out on life’s thrilling and alluring events that others are presently relishing. Research on people who suffer from FOMO reveals that they frequently worry that people around them are more joyful, satisfied, or involved in exciting activities than they are.
People who experience FOMO effect are compelled to conduct similar actions and keep informed about what other people are doing due to this fear. FOMO can appear in a number of contexts.
When performing customer research in the beginning of 1996, Dr. Dan Hernan discovered the FOMO phenomenon and came to the conclusion that it was one of the reasons why consumers were not loyal to any one business. Users continuously move between products during FOMO in order to not miss any noteworthy trends.
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FOMO in crypto investment
FOMO, or the fear of losing out on chances that are within reach, is a term used in the bitcoin realm. FOMO is the result of someone trading or investing in bitcoin assets irrationally based on unverified, incomplete, or untrustworthy information.
Trading cryptocurrencies can be compared to a game of hearsay and sentiment. When it comes to cryptocurrency trading, FOMO can cause consumers to sell their holdings at the lowest possible price or buy them at the highest price.
As a result, traders consider FOMO while deciding which tokens or coins to purchase, sell, or hold. Some people’s trading methods may even be altered by FOMO, and they may decide to accumulate or remove their assets entirely from the market.
The impact of FOMO during an uptrend market
Even though FOMO is commonly used to describe the fear of losing out on lucrative possibilities, this way of thinking can frequently have the opposite effect. When the prices of numerous cryptocurrencies saw huge gains between 2020 and 2021, many investors suffered from FOMO.
Frequent social media posts that “advertised” massive investment rewards through the timely acquisition of cryptocurrencies or NFTs served to amplify FOMO. Fear and greed were the main motivators for most investors during the brief time when the market peaked.
This caused a rush of investors purchasing a large number of tokens and NFTs. But not all of them were able to “take profits” when the hysteria faded. Losses from bad investments affect a person’s finances, relationships, and mental health in addition to their money.
Numerous reasons have contributed to the abrupt decline in the price of Bitcoin, and market transactions are still happening quickly. Many people are misled by “whispers” about government rules or a sinking market into making excessive purchases or sales without taking the underlying hazards into account.
In the investment world, short-term market movements are always popular despite constant cautions to the contrary. Quick price spikes draw a lot of investors, but these investors might easily lose money and go from FOMO to FUD.
The market turmoil of 2021 – 2022 is a prime example of this. Early adopters withdrew their support from several previously profitable cryptocurrency ventures, which resulted in steep losses for latecomers when values crashed.
The erratic price swings of Dogecoin in 2021 are a well-known illustration of cryptocurrency FOMO. A FOMO effect spread throughout the market as a result of Elon Musk’s tweets on Dogecoin, and many others swiftly followed the trend whether or not they already held DOGE.
Meme currencies frequently see abrupt price swings based on how the market evaluates their potential. Following Musk’s performance on “Saturday Night Live” in May 2021, Dogecoin had a meteoric rise to the top then fell about thirty percent in a single day.
The FOMO effect in the cryptocurrency space has also fueled interest in various “shitcoins” and sped up the creation of numerous projects that are purely speculative in nature.
Signs of FOMO to watch for
Some behaviors listed below could be signs that investors are suffering from FOMO:
- Wanting to purchase cryptocurrency at the first hint of a notable price increase in the project.
- Wanting to trade or invest only for the sake of the recent surge in popularity.
- Always wondering how much money one can make from a trade.
- Developing an obsession with trends and cryptocurrency trading on social media.
These behaviors may cause people to make rash decisions based on illogical thinking.
What to do to avoid FOMO during an uptrend market
Take time to research
A common source of FOMO is information that spreads across multiple channels. Such news usually comes from unreliable sources and is unconfirmed. In order to grasp the project’s position and prevent themselves from being duped by misleading information, investors must perform their own independent research.
Consult reputable media sources.
Keeping up to date requires investors to keep a list of reliable professionals and mainstream media sources. Investors can make more informed decisions about what assets to buy or sell by consulting reputable sources. The extra information also aids in directing investment choices and monitoring market trends.
Establish a clear strategy
Many tokens see price gains during an uptrending market, and new projects come to life. The “matrix” of projects could overwhelm investors, causing them to make transactions against their intended plans. Investors can rapidly get over FOMO by putting up a solid trading strategy and capital allocation plan.
Before choosing to invest in any token or currency, keep a check list. By combining technical and fundamental analysis, investors can be shielded from making rash trading judgments.
Understand market cycles
As with other financial markets, the cryptocurrency market goes through ups and downs in cycles, with periods of bullish and negative activity interspersed. Knowing these cycles lowers the chance of being controlled by FOMO by assisting investors in determining when to enter or leave the market.
Learn from past mistakes
Make sure you learn from your past mistakes to prevent FOMO. Do you recall the times when you panicked and sold assets in response to rumors of a next dump, just to watch the token’s value climb and vice versa? Loss is the most important lesson, as these situations can recur at any time.
FOMO is a tool for scammers
Numerous initial coin offerings (ICOs) and intricate FOMO-based schemes have surfaced since cryptocurrencies gained widespread acceptance. Investors are enticed to engage in a business by exploitative persons who use the attractive profit possibilities of initial coin offerings (ICOs). According to numerous studies, small-scale cryptocurrency fraud costs up to $9 million every day.
Creating “ghost” projects, distributing false information about enormous returns, and absconding with investors’ money are some other types of scams.
Be ready to suffer losses.
Because there will always be ups and downs in life, investors can approach the market with greater objectivity if they are willing to accept failure. Even ardent supporters of Bitcoin, like as Michael Saylor, co-founder of MicroStrategy, have lost trades.
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Conclusion
A profitable trade is actually the consequence of careful planning, thorough market research, and a well-thought-out capital allocation strategy. Though they still exist in the market, effects like FOMO and FUD shouldn’t affect seasoned and informed traders.
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