There are many losses attached to crypto investments. The obvious ones arise from price fluctuations and trading without in-depth analysis. Everyone in the industry is familiar with the above situations. But some losses occur due to traders' careless decisions based on fear and greed.
One such situation is FOMO (Fear of Missing Out). So what is FOMO in crypto? In this situation, investors follow the hype rather than the reality, placing their bets on fake projects without a solid foundation.
Cryptocurrency investing requires diligent and careful analysis, as many crypto projects are unstable. So, before making another decision, learn more about crypto FOMO and how to avoid it below.
Explaining Crypto FOMO In Investing?
FOMO crypto meaning hinges on fear – the mother of all irrational decisions. Crypto FOMO (Fear of missing out) is when a trader makes an irrational decision to be an early investor.
Traders sometimes make this decision based on information from unverified sources and without in-depth research. FOMO in crypto is like cancer, and it can produce miscalculated trading decisions. It drives investors; into buying crypto assets at their highest prices and selling at the lowest to follow a perceived trend.
Since the crypto market move on two emotions – fear and greed, a slight upturn in price can boost the FOMO levels in a market. Unfortunately, the fear of missing out at a perceived right time due to a hot tip has many downsides. Traders who have fallen into this trap can lose all their digital assets and confidence due to a previous mistake.
Also, the loss from that big move made when it is not a good time can wreck a crypto investor. Moreover, FOMO can cause psychological problems like anxiety, depression, anger, and withdrawal for many years for a trader.
A Few Examples Of FOMO
Assets that are controlled by media or individual sentiments are FOMO orientated and can be harmful to investors. They increase in price and leave investors feeling bad about missing out on an early entry. However, they can lose their value in a dramatic turn of events.
Pump and dump schemes are famous examples of FOMO tokens. Dogecoin, for instance, is a well-known example that wrecked many investors in 2021.
Elon Musk's tweets about Dogecoin sparked a FOMO frenzy and a false bull market. The coin pumped then decreased by almost 30% in just 24 hours, with Musk referring to it as a hustle.
Shiba Inu is also a classic case, still pumping from a tweet by Elon Musk creating a FOMO frenzy in the market. Shortly, a sudden dip in price brought investors crashing down.
Fear of missing out has driven some investors in the cryptocurrency community into making investments in shitcoins. These traders don’t want to miss out on “the next bitcoin.' So, they believe in the hype instead of researching widely.
Sadly, social media are not correct indicators of market movement, and many crypto predictions have downsides.
Some Signs Of FOMO To In Crypto
FOMO can be identified; by taking note of the following signs:
1. Desire to trade an asset based on popularity and hype from media outlets alone.
2. Always following social media trends to an obsession concerning cryptocurrency and trades.
3. A sudden need to purchase cryptocurrencies on hearing it has gained or is the next big thing.
These signs, although not exhaustive, are the most common indicators to identify if a trader is exhibiting FOMO. Trend following might not always yield desired results, since most traders do not know when to cut their losses.
Here are some causes of crypto FOMO:
Causes of crypto FOMO
FOMO is promoted in the crypto community as a result of different factors. It is bound to emotional decisions from copying other investors. The causes of FOMO are listed below.
1. The next big thing
Investors are always looking for the next big thing in the market. According to the Motley Fool, investors must understand that investing is about the long term. The success of established projects like Bitcoin and Ethereum and other projects in the marketplace can create FOMO.
Driven by the desire for large investment returns, investors plunge into projects without a comparable market cap to bitcoin.
2. Dreading big losses
FOMO can also be born from the desire to only profit from all trades.
Individuals with this mindset only trade big moves, not minding the current price. However, FOMO is also experienced when trying to avoid big losses.
3. Too much information
When all the news outlets and social media channels point towards a particular stock recommendation or trade collectable, it is easy to make rash decisions.
Some outlets can trumpet the benefits of a project and exaggerate its cumulative growth. This information can fuel herd mentality, and traders discard small portions to commit big stakes to untested markets.
4. Untested markets in cryptocurrency
With technological innovation and access to new information, new cryptocurrency projects are launched regularly. However, cryptocurrencies are generally volatile, and most of these overhyped projects have yet to be tested in comparable markets.
Due to the fear of missing out, traders invest in these tokens on an untested blockchain and can lose out on their investments.
Since crypto is largely decentralized; and unregulated, Ponzi schemes and shitcoins abound in the market. FOMO will make traders jump on any project that seems to be gaining traction with no foundation.
5. The scramble to be an early investor
Motivated by many success stories, traders fear missing out on a profitable investment due to delay. While Bitcoin and Ethereum have repaid early investors tremendously, you must note that not all cryptocurrencies will become big.
The pain of missing out on bitcoin has driven many investors to bad trading decisions that wrecked their portfolios.
What Is The Similarity Between FUD And FOMO
FUD and FOMO are both emotionally driven trading decisions that make traders more vulnerable to losses.
FUD is the spread of – Fear, Uncertainty, and Doubt in the market, usually through media channels. FOMO is the fear of missing out on an investment opportunity perceived as profitable.
FUD can affect the prices of assets by spreading fear through social media. This will increase the fear index in the market and create unfavorable market conditions. FUD drives herd mentality more among traders spreading pessimism and contributing to a bear market.
These two elements can cause traders to take irrational steps in trading, ending up with unnecessary losses.
Another common trait FUD and FOMO share are that they are found in fast-paced markets. Generally, when volatility is high: uncertainty will also increase in the market.
Since the crypto market is notoriously volatile, negative sentiments can quickly influence decisions in the market.
FUD Vs. FOMO, What Are The Differences?
The main difference between this two is that FOMO is a personalized emotion caused by irrational fears. On the other hand, FUD represents fear, uncertainty, and doubt in the general crypto market.
While FUD is fueled by fear, FOMO can also be driven by greed. When the greed index in the market is high, traders make hasty trades that lead to more misery.
FUD is spread mainly through media outlets with a negative event or remark enough to start a negative revolution. Traders can start selling at a loss, for instance, if an influential figure predicts the price of an asset to fall.
The herd mentality is common with FUD because rumors and negativity fuel it. Herd mentality is the tendency for individuals to conform to the behavior and decisions of a group to which they belong.
This means a trader will make decisions based on the prevailing direction of the market and the most.
On the other hand, the fear of missing out is an attempt by investors to adopt projects destined to grow early. Investors are looking for the next project that will enjoy the success of bitcoin.
All cryptocurrencies at launch will aggressively promote their tokens, spread positive news, and hope to win over investors. There are no certainties in the crypto market. This fear often leads traders to make decisions that lead them to lose positions.
FOMO is more common among new traders who might not understand the rudiments of successful trading. These traders are often desperate for huge returns and end up making irrational decisions.
FOMO In Crypto Investment, How To Avoid It
The fear of missing out is prevalent in the cryptocurrency community, especially with the constant price fluctuations. Investors often face dilemmas in deciding when to invest and sell their assets to avoid losing or missing out on good projects. Some crypto investors are probably under FOMO in the current crypto winter and FTX crisis.
We have highlighted below tips to help you avoid FOMO in the crypto business.
Conduct extensive research
The confusion caused by much information from different sources can predispose investors to FOMO. Most news is either steered by baseless hype to promote a crypto project or biased interpretations to pull it down.
As such, one must be very careful of the source and kind of information on which to rely. To avoid unnecessary dilemmas, conduct in-depth research and verify the information before buying it.
Conduct due diligence to understand the situation of an asset, its tokenomics, and the risks involved before investing. No matter how enticing the news appears, verify before leaping.
Develop long-term goals instead of simply making gains
Before investing in any cryptocurrency, identify your purpose for making profits. Long-term goals like retirement, purchasing a home, and so on could be a better reason for cryptocurrency investment other than just making money.
Having clear goals can stop you from committing a large portion of your funds when you only require a small portion. So, reconsider your decision if the goal is short-term because any loss will hit you hard.
However, if your goal is long-term, a loss in value may be okay. Doing this evaluation helps in better risk assessment and preventing FOMO-driven decisions.
Only rely on information from trusted outlets.
While in-depth research can help you overcome FOMO in crypto, relying upon experts or trusted media outlets for information gives an added advantage. These sources can assist an investor in making better trading or investment decisions.
Refer to crypto analytic experts like Santiment, Chainalysis, Dune Analytics, and so on for insights on your target assets. Bloomberg and the Wall Street Journal are typical media outlets where you can access reliable information and verify social media hot tips.
Build a portfolio of good investments
Avoid adding hot tips from social media or peers into your portfolio because they may not be reliable. Instead, build your portfolio of quality investments based on long-term theory and attain cumulative growth.
It may make sense to put a small portion of your portfolio in high-risk investments with higher returns if you would not use the money for many years. But make sure you do not rely on information from social media or peers.
Instead, focus on adding speculative growth investments that will enable you to build a lasting business model. Following this, you can start with a small portion, maybe 10% of your portfolio, and grow from there.
This implies that you should identify crypto projects with long-term use cases and start small while you grow your portfolio. You can increase your portfolio when you are comfortable with the market volatility.
Develop a checklist
A checklist could be in the form of a guide you can refer to when making trading decisions. You could devise your strategy and incorporate them into your investment guide.
These strategies may include running technical analysis or checking previous market cycles of the token you intend to buy. The guide can keep you in check before making investment decisions to avoid falling into FOMO.
The bottom line is that the crypto market is not always what it seems. There are scam projects, and someone can get misinformed. However, staying mentally prepared and alert can help investors avoid falling into FOMO.
Avoid quick profit schemes.
With over 3000 digital assets in the cryptocurrency space, it is easy to fall into the FOMO trap. Avoid projects that are too good to be true or initial coin offerings that are shady. A trader must take risks, but the risks should not be irrational or unnecessary.
Always dig deeper beyond the hype and glam and look for fundamentals like the whitepaper details. FOMO will make traders overlook the potential red flags of a crypto project.
If the coin seems to pump exponentially, it can also lose all its value and be worth next to nothing in a short while. It is much better to consolidate on small wins than to be trapped looking for the next big payday.
FAQ-Common Questions Around FOMO
Many people often display signs of FOMO without realizing it. Check these questions and answers below for more clarity.
What does crypto FOMO mean?
FOMO is the acronym for 'fear of missing out. It occurs when crypto traders make hasty and irrational decisions without proper investigations. The fear of losing out on big moves or avoiding losses leads to FOMO.
How to deal with crypto FOMO?
To deal with FOMO or possibly get rid of it, you must understand the crypto market, including all pros and cons. Try not to rely on instincts because they may not always be right.
Conduct due diligence before making any moves in the crypto market. Above all, stay alert always.
Where can I buy FOMO Crypto?
FOMO LAB (FOMO) is currently not listed on many exchanges. But you can follow the steps on Binance and CoinBase to buy the FOMO token.
For more reliable crypto, visit the Margex crypto exchange. Margex offers a secure and transparent platform with optimal privacy options to users.
On Margex, users can access insightful information on how to trade and beat the negative trends in the market.