How does FOMO Affect the Crypto Market

How does FOMO Affect the Crypto Market

Digital currencies have seen tremendous growth since the launch of bitcoin, the first cryptocurrency. From its humble beginnings in 2009 to its zenith in 2021, the crypto market has seen its fair share of ups and downs. There are times during these up-and-down cycles when there is a continuous upswing or downswing.

Many cryptocurrency investors have made enormous gains during times of constant upswings. As a result, people start investing in cryptocurrencies because they fear missing out on those huge profits. 

Although it doesn’t seem that lucrative, doing so can sometimes result in huge profits. It’s because the crypto market is volatile and can be easily manipulated through misguided information available on the Internet.

To understand how cryptocurrency investments are affected by the fear of missing out (FOMO), it is essential to understand both the beneficial as well as non-beneficial aspects of FOMO.

Benefits of FOMO

Crypto investments are largely influenced by buyers’ fear of missing out. It causes investors to behave impulsively and who then start buying cryptocurrencies. 

This herd behavior increases the demand for the digital currency and thus ratchets up the value of the currency. Even the most experienced amongst us can be swayed by our emotions because the crypto market is unpredictable and we don’t want to regret not hitching our ride to the winning horse when we could have. 

It is particularly true for investors of Bitcoin, as it is the most-traded cryptocurrency. Any increase in its price creates a fear of missing out in investors and they start buying it impulsively. This impulsive buying further jacks up the price and the investors gain more profits.

To make the most out of your bitcoin investments, keeping track of the updated price of bitcoin is essential. You never know when the upturn of bitcoin can start, and if you don’t take action at the right time, you might miss out on huge profits.

Side Effects of FOMO

As with the benefits of FOMO, investors can also end up with huge losses if decisions are not taken early. As the crypto market is highly unpredictable, rumors can influence prices of the digital currencies. 

When the price of a cryptocurrency rises based on false information, the market is bound to correct the price. As happened with bitcoin in 2017, when it rose to $20,000 because of impulsive buying before coming back to its market price of $11,000. 

Because the crypto market is unregulated, there is a lot of hype around it. This is partly a fault of the crypto community itself because they make unrealistic price projections for the currencies. 

The new investors fall into the trap of these unrealistic projections and invest in the wrong currency or at the wrong time.

Strategies to Avoid FOMO

As we have seen, FOMO can have both benefits as well as side effects, you must keep your emotions in check when investing. 

Even if you are new to the crypto world and don’t know much about investing, you can follow these 4 strategies to avoid FOMO when investing:

  1. Take information only from credible sources

Both the crypto market and the crypto community have been growing for the past few years. Online conversation groups, social media interactions, and content creators have all been talking about cryptocurrencies. 

Therefore, there has been an increase in the false information available on the Internet.

It is not uncommon to see clickbait titles such as “the next bitcoin” or “the cryptocurrency that can make you rich in months” on the Internet. 

These clickbaity crypto news create a sense of FOMO in prospective investors. New investors often fall prey to this technique and experience losses.

To avoid FOMO, it is essential to sort information only from credible sources. Although not easy to find, some websites offer neutral and balanced information related to the crypto market. 

Information from credible sources can make the difference in avoiding succumbing to emotions entirely.

  1. Determine your investment targets

As a first step, determine why you want to invest and what you want to achieve with your investments. Defining your targets can help you make an investment plan. 

You can use the plan to gradually invest in cryptocurrencies. It might be best to include a list of crypto coins that you would want to buy to achieve your investment targets. 

When you have a clear investment plan, you would be less prone to blatant rumors. A clear investment plan is one of the most effective measures in avoiding FOMO.

  1. DCA Strategy

Dollar-cost averaging (DCA) is an investment strategy where you invest the same amount of money in a cryptocurrency over a certain period of time. 

It is done to reduce the volatile effects of the crypto market. For instance, if you want to invest a total of $1 million in bitcoin over 1 year, you would divide the total investments into 12 installments and invest only around $85,000 each month. 

The key to avoiding FOMO is to stick to your plans and not to be influenced by rumors or uninformed predictions. It is essential to read up on analysis from credible sources when devising your DCA strategy.

  1. Investment Diversification

One of the most important aspects of any investment strategy is the diversification of the assets. Investing in multiple cryptocurrencies can help reduce the chances of a loss. However, it also means that you won’t be able to make big gains from your investments.

Diversification allows you to avoid putting all your eggs in one basket and take advantage of multiple revenue streams. It ensures that you won’t end up broke even if one of the cryptocurrencies experiences a huge dip in its price.

To Sum Up

The crypto market is highly volatile and influenced by many factors such as hyped news, unrealistic price predictions, and the unregulated community. People start buying cryptocurrency when its value is predicted to grow exponentially or when the media creates hype around a certain cryptocurrency. This contributes to FOMO in investors by creating a sense of urgency. Investors might start impulsively buying the digital currency. Some investors might luck out and win big, while most suffer losses following their emotions. 


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