How to Deal with Crypto FOMO
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“Hey Max, Did You Know You Missed Dogecoin?” Everyone Made A Fortune From It.”
Many investors are terrified of questions like these. So much so that there is even a term for it: FOMO (fear of missing out). Research has found that FOMO is most prevalent in people between the ages of 18 and 35. FOMO is a popular term in the cryptocurrency community, a market that has become associated with irrational and sometimes unfounded trading decisions.
Key points to remember
- FOMO is the acronym for “fear of missing out”; it is an ancient phenomenon that is part of the life of all humans.
- Experts have proven that FOMO affects the quality of human life, leading to anxiety, loss of money, disconnection from family, and depression.
- FOMO is a popular term in cryptocurrency investing that means making an irrational decision to buy or trade cryptocurrency without doing your due diligence.
What is FOMO in Cryptocurrency Investing?
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. FOMO in cryptocurrency leads people to buy assets at their highest prices or even sell them at their lowest prices, rather than the other way around, which would be better advised. Sometimes the consequences of crypto FOMO can be worse and deeper than a loss of invested capital – it can lead to damaging situations such as disconnection from family, anxiety and depression.
Health Hazards Associated with FOMO
When a person loses trading capital in a bad investment, especially a large amount, it may affect him mentally. In turn, this failure can be reflected in other aspects of their life such as relationships, ties with family, friends, etc. The person begins to experience social decline and gradually becomes dysfunctional, if extra precautions are not taken.
In an 80-year study of men from Harvard students on what makes for a good life, the study’s fourth director, Robert Waldinger, said, “The surprising finding is that our relationships and our happiness in our relationships have a powerful influence on our health.”
Waldinger’s explanation can also be applied to crypto investing. FOMO in crypto can not only affect people’s wallets, but can 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 possible causes and symptoms, and ultimately taking action to prevent FOMO as an investor.
Examples of FOMO in Crypto
A familiar example of crypto FOMO to many is Dogecoin’s volatile moves in 2021. Tesla CEO Elon Musk’s tweets about Dogecoin caused FOMO among those who didn’t own Doge at the time.
The cryptocurrency meme has repeatedly seen a price surge or fall depending on how Musk’s words are perceived by the market. In May 2021, Dogecoin outpaced Musk’s appearance on the “Saturday Night Live” TV show, then slid almost 30%, within 24 hours after Dogecoin was called a “hustle” on the show when it appears.
The effect caused by FOMO in the crypto community has fueled investment in many shitcoins. Crypto FOMO is driven primarily by the desire to grab Bitcoin’s next lucrative successor whenever possible. In reality, making a potentially profitable move in the market results from making rational decisions after conducting extensive research before jumping to invest in any token.
Identify the cause of FOMO
There are several reasons that drive FOMO in the cryptocurrency community, and identifying some of them could help anticipate the emotion when it next arises. The five causes below are not exhaustive, but the list can help lay the groundwork for overcoming FOMO as a crypto trader or investor.
Catch the next big shot
The idea of catching the next big move has generally dominated the crypto community, driven by knowledge of how much money some early investors in cryptocurrencies such as Bitcoin and Ethereum made. Bitcoin, for example, has grown almost 30,000% cumulatively over the past nine years. The zeal to uncover another such surge has prompted FOMO in the community.
Avoid big losses
Crypto FOMO is often seen as one-sided: purely profit-driven, with individuals looking for a big move to gain. But the reverse is also true; people experience FOMO when trying to avoid large losses. A striking 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 for profiting from the cryptocurrency space. But it can also be a tool that drives FOMO, especially when there is access to an overwhelming array of data from multiple sources.
The first participant wins everything
This mentality stems from people who believe that first mover advantage always leads to a positive outcome due to the success stories of early investors in booming cryptocurrencies such as Bitcoin.
Just as there are sometimes advantages to being an early investor, it should be recognized that there are disadvantages to trading and not all cryptocurrencies will appear in the rankings of high performing crypto assets.
New untested market
Unlike forex and stock markets, the crypto market is relatively untested, largely unregulated, and has a low barrier to entry. These factors have led to an influx of people with limited knowledge and understanding of how the market works and enthusiastically participating, with their strategy mostly driven by FOMO.
Signs of FOMO to watch out for
Understanding some of the causes of FOMO is a good first step, but being able to recognize the signs, especially within yourself, is just as important. Here are some behaviors that could indicate the possibility that an investor is driven by FOMO:
- The need to buy cryptocurrency on hearing it has gained a huge percentage.
- A desire to trade or invest simply because a crypto asset has recently gained popularity.
- Constantly contemplating how much could be made if a trade is executed.
- Obsession with social media focusing on cryptocurrency trends and trades.
These four actions illustrate how greed can lead to making risky decisions, and how those choices can be irrational and fleeting.
How to avoid FOMO as a trader
Take the time to research
FOMO is compulsive and driven by information received from various channels. Usually, such news is unverified and interpreted based on personal bias.
As a crypto investor, doing some independent research to understand the coin’s situation is a must before you are tempted to make an irrational decision that could trigger a loss or, even worse, a liquidation.
Rely on trusted media
Conducting research gives you an edge in overcoming FOMO. Yet a useful additional practice is to have a list of experts and media outlets to turn to for more information. Relying on these selected media outlets and influencers as secondary sources helps in better decision making on buying or selling a crypto asset. The extra detail and clarity can help inform trading or investment decisions.
You can’t win all the time
Life is a combination of ups and downs; coming to this realization gives an investor a logical perspective and a better foundation. Understanding that investing one cannot always be in a profitable position sets the stage for more gains and being able to handle occasional losses. Even bitcoin advocates like MicroStrategy co-founder Michael Saylor aren’t always on the winning side of the crypto market. A crypto investor or trader’s best bet is to develop strategies that make it easier to detect FOMO.
Development of an orientation strategy
Having a guiding principle is a constructive way to overcome the effects of FOMO. This means maintaining a checklist to avoid making drastic decisions or jumping on the market bandwagon too quickly. Your strategy will incorporate nuances such as the use case of the crypto assets you are considering, its tokenomics, etc. Combine fundamental and technical analysis whenever possible to protect yourself from poorly thought out 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 bullish and bearish periods. The bull market includes a series of price highs and the bear market comes with lows and people losing money. Understanding this cycle will help reduce the risk of being driven by FOMO, when you can recognize the right time to enter and exit a trade.
Learn from previous mistakes
One of the best ways to avoid FOMO anxiety is to learn from previous mistakes. Think back to when you panickedly sold your Bitcoin, driven by news you heard of an incoming dump, only to see its price rise sharply after hitting the sell button. You discovered that the information was not thorough or may not be correct. Such a scenario can make you regret selling. To avoid this, think about a situation where you made a business decision that resulted in a loss of money, a decision you regretted. As the saying goes, “once bitten, twice shy” should be your guide.
Remember, FOMO is a tool for scammers
Since the crypto started gaining global recognition, many initial coin offerings (ICOs) have sprung up. Some are genuine and some have been a tool of exploitation.
Scammers use these fraudulent tokens or ICOs to persuade investors via FOMO to pour money into them. A study has shown that 80% of ICOs are a scam. Another report estimated 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 obscures a decision.
The essential
Forms of FOMO were part of human existence long before the invention of cryptocurrency. With cryptocurrency, this can be detrimental due to the risk of losing the entire investment. Following guidance with discipline can help investors avoid the danger and influence of FOMO cryptocurrency.
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