FOMO is an acronym for fear of missing out. In the cryptocurrency market, FOMO refers to missing out on the returns that other traders may be enjoying. It's the opposite of the fear, uncertainty and doubt (FUD) that the cryptocurrency space typically offers.
FOMO causes traders to be active and sometimes overactive to the volatility and unpredictability of the cryptocurrency space. Rumours and false speculation that appear on social media are often a result of FOMO. Once fear is instilled, traders tend to make emotional decisions to buy or sell crypto without researching and authenticating information. This fear, if left unchecked, can lead to poor financial decisions.
How FOMO affects investment decisions
According to one analysis, FOMO has two components. Firstly, the fear of others having rewarding experiences without being able to share in them. And second, the desire to stay in touch with the social network to minimise the potential fear of missing out on important information. In the context of cryptocurrencies, FOMO describes the fear of missing out on the hype or a pump.
FOMO plays a massive role in driving the crypto space and is still responsible for certain price movements. However, FOMO does not always have a negative connotation. If timed correctly with market sentiment, significant results can be achieved. Such information is usually first shared on Crypto Twitter or the project's Discord channels. This then triggers a strong reaction within the wider crypto community.
FOMO in the crypto space
A notable example of FOMO in the crypto space is the Bitcoin bull run in 2017. The price of Bitcoin skyrocketed to $20,000 and FOMO was put into action. The mainstream media stoked the fire and created huge speculation, causing investors to pile in. But soon the hype faded and Bitcoin plunged over 80% from its then all-time high.
Another prominent case was the ICO craze of the same year. New coins were launched every day, promising to revolutionise the crypto industry. Investors worried that they would miss out on these 'next big things' if they did not get in early. However, this ICO boom was led by many fake projects and questionable coins that raised millions. The results of irrational trading and uninformed decisions have led to the mantra of DYOR (do your own research). This is a term often used in the crypto space to warn investors not to react too quickly and to make informed decisions.
