“Hey Max, did you know you missed out on Dogecoin?” Everyone made a fortune off it.”
Questions like these scare many investors. So much so that there is even a term for it: FOMO (fear of missing out). Research has found that FOMO is more common in people between the ages of 18 and 35. FOMO is a term popular in the cryptocurrency community, a market associated with irrational and sometimes unfounded trading decisions.
The central theses
- FOMO is short for “fear of missing out”; it is an ancient phenomenon and a part of everyone’s life.
- Experts have proven that FOMO affects people’s quality of life – leading to anxiety, loss of money, separation from family and depression.
- FOMO is a popular term in cryptocurrency investing that means making an irrational decision to buy or trade a cryptocurrency without doing the due diligence.
What is FOMO when investing in cryptocurrencies?
FOMO in the crypto world occurs when a person makes an irrational decision to trade or invest in a crypto asset based on information received without properly verifying its source and/or accuracy. Cryptocurrency FOMO results in people buying assets at their highest prices or even selling them at their lowest, rather than the other way around, which would be better advised. Sometimes the consequences of crypto FOMO can be worse and more profound than a loss of invested capital – it can lead to harmful situations such as family separation, anxiety and depression.
Health hazards associated with FOMO
If a person loses trading capital from a bad investment, especially a large amount, it can affect him mentally. These failures, in turn, can be reflected in other aspects of their lives, such as relationships, connections with family, friends, and more. The person begins to experience social decline and gradually becomes dysfunctional unless extra care is taken.
In an 80-year study by male Harvard students What constitutes a good life, said the study’s fourth leader, Robert Waldinger, “The surprising finding is that our relationships and how happy we are in our relationships have a powerful impact on our health.”
Waldinger’s explanation can also be applied to crypto investments. FOMO in crypto can not only affect people’s portfolios, but also translate to their health and quality of life.
It is important to avoid crypto FOMO by learning more about what it is through examples, understanding its causes and possible symptoms, and ultimately acting as an investor to prevent FOMO.
Examples of FOMO in crypto
A well-known example of crypto FOMO for many is Dogecoin’s volatile moves in 2021. Tesla CEO Elon Musk’s tweets about Dogecoin caused FOMO among those who did not own Doge at the time.
The meme cryptocurrency has seen its price rise or fall on multiple occasions, depending on how Musk’s words are perceived by the market. In May 2021, Dogecoin jumped ahead of Musk’s appearance on the TV show “Saturday Night Live” and then tumbled nearly 30% in the 24 hours after Dogecoin was called a “hustle” on the show when he appeared.
The effect caused by FOMO in the crypto community has fueled investment in many shitcoins. Crypto FOMO is mainly fueled by a desire to grab Bitcoin’s next profitable successor whenever possible. In reality, a potentially profitable move in the market results from making rational decisions after thorough research before committing to an investment in a token.
Identifying the cause of FOMO
There are several reasons driving FOMO in the cryptocurrency community, and identifying some of them could help prevent the next emotion. The five reasons below are not exhaustive, but the list can help lay the foundation for overcoming FOMO as a crypto trader or investor.
Catch the next big step
The idea of taking the next big step has dominated the crypto community in general, fueled by knowledge of how much money some early investors have made from cryptocurrencies like Bitcoin and Ethereum. Bitcoin, for example, has seen cumulative growth of nearly 30,000% over the past nine years. The eagerness to spot another surge like this has prompted FOMO in the community.
Avoid the big losses
Crypto FOMO is often seen as a one-way street: for-profit only, with individuals looking for a big move to capitalize on. But the opposite is also the case; People experience FOMO when trying to avoid significant losses. A prominent example is the crash of TerraUSD (UST), a stablecoin that lost 70% of its value from $1 to 30 cents on May 11, 2022.
Access to too much information
Information is a crucial driver, especially to profit in the cryptocurrency space. But it can also be a tool that drives FOMO, especially when accessing an overwhelming amount of data from multiple sources.
The early competitor wins everything
This mentality stems from people who believe that the early mover advantage always leads to a positive outcome due to success stories from early investors in booming cryptocurrencies like Bitcoin.
Just as there are sometimes advantages to being an early investor, it should be recognized that trading also has disadvantages and not all cryptocurrencies will appear on the top performing crypto assets rankings.
New, untested market
Unlike the forex and stock markets, the crypto market is relatively untested, largely unregulated, and has a low barrier to entry. These factors have resulted in an influx of people with limited knowledge and understanding of how the market works to eagerly participate, with their strategy largely being driven by FOMO.
Signs of FOMO to look out for
Understanding some of the causes of FOMO is a good first step, but recognizing the signs of it, especially in yourself, is just as important. Here are some behaviors that might indicate the possibility that an investor is FOMO-driven:
- The need to buy a cryptocurrency by hearing about it has increased a massive percentage.
- A desire to trade or invest simply because a crypto asset has recently gained popularity.
- Constantly thinking about how much could be made by executing a trade.
- Social media obsession with a focus on cryptocurrency trends and trading.
These four acts illustrate how greed can lead to risky decisions and how those decisions can be irrational and fleeting.
How to avoid FOMO as a trader
Take your time to research
FOMO is compulsive and driven by information received from a variety of channels. Usually such messages are unverified and interpreted as personal bias.
As a crypto investor, it’s a must to do independent research to understand the coin’s situation before you’re tempted to make an irrational decision that could trigger a loss or, worse, liquidation.
Rely on trusted media
Conducting research gives you an edge in overcoming FOMO. However, another helpful practice is to have a list of experts and media that you can contact for more information. Relying on these select media and influencers as secondary sources contributes to better decision making about buying or selling a crypto asset. The added detail and clarity can help make trading or investment decisions.
You can’t win all the time
Life is a combination of ups and downs; Coming to this conclusion gives an investor a logical perspective and a better foundation. Understanding that you can’t always be in a profitable position when investing sets the tone for more profits and the ability to manage occasional losses. Not even Bitcoin proponents like MicroStrategy co-founder Michael Saylor are always on the winning side of the crypto market. A crypto investor or trader’s best bet is to create strategies that make it easy to spot FOMO.
Development of a guiding strategy
Having a guiding principle is a constructive way to overcome the effects of FOMO. It means keeping a checklist to avoid making drastic decisions or jumping on the market bandwagon too quickly. Your strategy will include nuances such as the use case of the crypto assets you are considering, their tokenomics, and more. Whenever possible, combine fundamental and technical analysis to protect against ill-conceived trading decisions.
Know that the market is cyclical
The cryptocurrency market, like others in the financial world, moves in an up and down cycle with ups and downs. The bull market comes with a series of highs and the bear market comes with lows – and people losing money. Understanding this cycle helps reduce the risk of being driven by FOMO when you can identify the right timing to enter and exit a trade.
Learn from past mistakes
One of the best ways to avoid fear of FOMO is to learn from past mistakes. Think about the moment you panic-sold your bitcoin – prompted by news you heard about an incoming dump – only to see the price surge after you hit the sell button. You determined that the information was not thorough or may not have been accurate. Such a scenario can make you regret the sale. To get around this, think about a situation where you made a trading decision that resulted in lost money, a situation you have regretted. As the saying goes, “once bitten, twice shy” should be your guide.
Remember that FOMO is a scammer’s tool
Since crypto gained global recognition, many Initial Coin Offerings (ICOs) have sprung up. Some are real and others were instruments of exploitation.
Scammers use these fraudulent tokens or ICOs to convince investors to put money into them via FOMO. A study has shown that 80% of ICOs are a scam. Another report estimates that $9 million is lost to small-scale cryptocurrency scams every day. It’s important to remember how plausible ICO scams can seem when FOMO clouds a decision.
The final result
Forms of FOMO were a part of human existence long before cryptocurrency was invented. With cryptocurrency, this can be detrimental as an entire investment may be lost. Disciplined compliance with instructions can help investors avert the danger and influence of cryptocurrency FOMO.