FOMO, or “fear of missing out,” refers to the feeling of anxiety or insecurity that can arise when we believe that others are having experiences that we are not. It is often associated with social media and the constant stream of information that it provides about the activities and experiences of others. In the context of crypto specifically what you are missing out on is making money. A lorra money.
You know the feeling.
You’re scrolling through your social media feed and you see all your crypto-obsessed friends raving about the latest and greatest initial coin offering, or boasting about the amazing returns they’ve made on their digital asset investments. You start to feel that creeping feeling of anxiety that you might be missing out on something huge. Before you know it, you’re frantically Googling how to buy that particular coin.
Sound familiar? If it does, you’re not alone. In the fast-paced world of crypto markets, FOMO is a major driving force for many crypto traders and investors. And while it can be tempting to chase after the latest hot coin or jump on a seemingly lucrative trading opportunity, it’s important to remember that FOMO can also lead to hasty, uninformed investment decisions. The crypto market is volatile enough. There is not need to the greater risks of financial losses that come with acting on FOMO.
1. How FOMO Affects Crypto Traders and Investors
The influence of social media and the crypto community on FOMO can’t be understated. With everyone from Elon Musk to your neighbor’s cousin’s college roommate weighing in on the latest crypto projects and digital coins, it’s easy to feel like you need to keep up with the Joneses – or, in this case, the Nakamotos. But it’s important to remember that just because something is trending on social media, it doesn’t necessarily mean it’s a good investment. In fact, the hype and FOMO surrounding certain coins can often lead to artificially inflated prices and unrealistic expectations.
Some FOMO examples
For examples, look now further than the DeFi summer and DeFi 2.0. Remember the likes of $TIME Wonderland and Olympus DAO that were offering outrageous yields. Or the pumps and dumps of Doge coins, Shiba Inu and the rest of the meme coins. Or more recently the frenzy for coins promoted by controversial personalities like Richard Heart’s HEX.
FOMO in crypto can lead to financial losses
The risks of financial losses associated with FOMO in the volatile crypto market are significant. The rapid rise and fall of coins and the unique experience of trading digital assets can make the FOMO feeling even more intense, and it’s easy to get caught up in the hype and excitement of it all. But it’s important to keep in mind that the crypto market is still relatively new and largely unregulated, which means there are greater risks of financial losses due to false information, market manipulation, and “pump and dump” schemes. Add lack of trading experience to boot and you’ve got yourself a recipe for disaster.
2. How do I know if I am experiencing FOMO
Here are some signs that you may be experiencing FOMO in your trading or investing:
- You feel anxious or urgently interested in a particular coin or trading opportunity, without taking the time to thoroughly research and understand it.
- You are swayed by the hype or opinions of others, rather than making investment decisions based on your own research and analysis.
- You are tempted to make impulsive trades based on a fear of missing out on a potentially lucrative opportunity.
- You are swayed by market trends or hype, rather than considering the long-term potential of a particular asset.
If you are experiencing any of these signs, it’s important to take a step back and consider whether you are making decisions based on FOMO or on your own analysis and research. It can be helpful to set personal rules for yourself, such as only investing a certain percentage of your portfolio in high-risk assets or never making a trade based solely on hype or FOMO, to help you avoid falling victim to the dangers of FOMO in your trading and investing.
Let’s take a closer look at how you can avoid falling victim to the crypto FOMO trap?
3. How to Avoid FOMO in the Crypto Market
i. DYOR: Do Your Own Research
First and foremost, it’s crucial to do your own research and due diligence before making any investment decisions.
This means taking the time to understand the underlying technology of a particular coin or project, examining its past performance, and consulting with financial advisors or institutions to get a wider perspective on the market. It’s also a good idea to set some personal rules for yourself – for example, only investing a certain percentage of your portfolio in high-risk assets, or never making a trade based solely on hype or FOMO.
ii. Trade on momentum to take advantage of other’s FOMO
Doing your own research is easier said than done. If everyone is posting bullish Tweets and you keep seeing YouTube videos talking about coins going to the moon you are bound to get a real taste of FOMO. Typically all these videos will say something like, “This is not financial advise and do your own research.” And then they will tell you about why you are missing out on some massive opportunity you are missing out on.
Doing your own research implies you should look at the fundamentals of a project and conduct some complicated mental math to arrive at a valuation. The reality is that it is very very hard to price these products and the fundamentals are highly debatable. Wayyyyy more than stocks. The price of a crypto token in the short run at least just follows momemtum. If everyone is buying price goes up. Until they don’t.
With the wild upswings that the crypto market experiences you are bound to come across many people who have made it big. Some of them will be lying just to get those extra followers. But many of them are not. They truly did catch the wave early and rode it to a massive peak. Rather than focusing on fundamentals you are better off learning how to trade based on momentum signals. This will help you understand when is a good time to get in and when is a good time to get out. I am no expert in this field but I did read a great book that I highly recommend. Check out The Crypto Trader by Glen Goodman.
iii. Consider the crypto market as a whole
It’s also worth considering the context of the crypto market as a whole. While the cryptocurrency space is filled with great investment opportunities, it’s important to remember that it’s still a new and unregulated market. This means that it’s more susceptible to false information, market manipulation, and “pump and dump” schemes. All of these can feed into the FOMO frenzy. Also make sure to be wary of third-party websites or sources that might be promoting a particular coin. Always double-check any information you come across before making a trade.
4. The Role of FOMO in the Greater Context of Financial Markets
It’s not just the crypto market that’s prone to FOMO, of course. The stock market, real estate, and other traditional financial markets are all subject to the fear of missing out on a potentially lucrative investment. But in the crypto space, the rapid rise (and fall) of coins and the unique experience of trading digital assets can make the FOMO feeling even more intense. This is especially true in a bull market. When prices are rising and it can seem like there are endless opportunities for profit. But it’s important to remember that bull markets eventually give way to bear markets. The crypto market is no exception. In the face of market conditions like this, it’s crucial to remain disciplined and stick to your investment strategy, rather than making impulsive trades based on FOMO.
So, what’s the takeaway here? FOMO is a common and potentially dangerous force in the world of crypto. But it doesn’t have to control your investment decisions. By taking the time to do your own research, setting personal rules for yourself, and being mindful of the greater context of the market, you can avoid making hasty trades based on FOMO. This, in turn, will allow you to make better, more disciplined investment choices.
Just remember: as the wise (fictional) Dr. Dan Herman once said, “Diamond hands, not paper hands.” In other words, have the discipline and conviction to hold onto the investments you believe in. And avoid trying to join the bandwagon on every new thing you hear about. With a little bit of self-control and a lot of due diligence, you can navigate the crypto market with confidence. And, who knows, maybe you’ll even make a few satoshis in the process.
I hope this was useful. Another common question that crypto rookies ask is what is AMA in crypto.
FAQs about FOMO
Is FOMO good for crypto?
It's important to consider the role that FOMO plays in the crypto market. On the one hand, FOMO can be a major driving force for traders and investors, and can even contribute to the rapid rise in the price of certain coins or projects. However, it's important to remember that FOMO can also lead to hasty, uninformed investment decisions, and can contribute to the overall volatility of the market.
How do you avoid FOMO in trading?
To avoid FOMO in trading, it's important to set clear goals and a solid investment strategy, and to stick to it even when the market is volatile or there are seemingly lucrative opportunities. It's also crucial to do your own research and due diligence before making any investment decisions, and to consult with financial advisors or institutions to get a wider perspective on the market. It can be helpful to set personal rules for yourself, such as only investing a certain percentage of your portfolio in high-risk assets or never making a trade based solely on hype or FOMO. By approaching the market with discipline and caution, you can avoid making hasty or uninformed trades based on FOMO and make more informed, disciplined investment decisions.
What are the dangers of FOMO?
The dangers of FOMO in trading and investing can include making hasty or uninformed decisions, chasing after hype or trendiness rather than conducting proper research and due diligence, and taking on greater risks of financial losses due to market volatility or false information. FOMO can also contribute to the overall volatility of the market, as people may make impulsive trades based on their fear of missing out, rather than considering the long-term potential of a particular asset. It's important to be mindful of the potential risks of FOMO and to approach the market with caution and discipline, rather than letting the fear of missing out drive your investment decisions.