FOMO: Everything to Know
By Beluga Research August 12, 2023
- Cryptocurrency Fear of Missing Out (FOMO) is the anxiety-driven desire to invest in a digital asset before the window of opportunity closes.
- FOMO encourages members of the cryptocurrency community to get involved with certain platforms and investment options within set time periods.
- This can encourage involvement in the cryptocurrency ecosystem but also increase chaos
- Cryptocurrency communities should monitor user discussions and feedback to entities in charge to understand how FOMO plays into transactions
Cryptocurrency Fear of Missing Out (FOMO) is the anxiety-driven desire to invest in a digital asset before the window of opportunity closes. Cryptocurrencies have experienced tremendous growth and volatility since their inception. This volatility has attracted a vast number of investors seeking to capitalize on the potential gains offered by the emerging market. As a result, the crypto market has become highly dynamic. It is driven by investor sentiment and market psychology.
A Brief History
Investors have experienced FOMO since the early stages of the crypto market, particularly during the bull run of 2017. At this time, bitcoin reached its all-time high, surpassing $19,000 per coin. The unprecedented growth and media coverage surrounding Bitcoin attracted widespread attention. This led to a surge in investor interest.
As bitcoin's price continued to climb, investors experienced a sense of urgency and anxiety. They worried that they would miss out on the opportunity to profit from the cryptocurrency's meteoric rise. Their FOMO, coupled with the fear of being left behind by early adopters, fueled a buying frenzy in the market. This led to the market experiencing a speculative bubble. For a time, prices soared to unsustainable levels.
FOMO: Everything to Know
FOMO drives individuals to make impulsive decisions. It often leads to a rush to buy or sell a particular digital asset. FOMO is spurred by media attention, word of mouth, and direct observations of significant price increases or drops. FOMO encourages investors to act quickly. Investors may fail to pay adequate attention to concerns like scams.
One of the key drivers of FOMO in the cryptocurrency market is the fear of missing out on the next "Bitcoin-like" opportunity. Bitcoin's remarkable price surge and subsequent success leads many investors to seek the next big cryptocurrency. Their quest for the next "crypto gem" can encourage irrational decisions.
The pervasive influence of social media and online communities amplifies FOMO in the cryptocurrency space. Platforms such as Twitter, Reddit and Telegram serve as hubs for enthusiasts and investors. Here users discuss market trends, share investment strategies, and showcase their gains. When individuals witness others' success stories or note the potential of a particular cryptocurrency, a collective sense of FOMO develops.
FOMO-driven investments are often based on emotional reactions rather than thorough research and analysis. Investors succumbing to FOMO may overlook fundamental factors such as a project's underlying technology, long-term viability, and potential risks. This behavior can contribute to market volatility. It can also expose investors to potential losses.
- FOMO can lead to opportunities for individuals, organizations and platforms. Investors can realize profits by acting on opportunities because of FOMO. Platforms can see assets sell out and their blockchain grow due to FOMO.
- This can mean speculation, instability and network congestion. A platform can limit the negative effects of FOMO by monitoring activity and engaging in corrective action.
- FOMO can drive the growth of the cryptocurrency ecosystem. FOMO can encourage sales of an asset. It can also encourage miners to get involved with a platform.
- Encouraging investor restraint during periods of FOMO can reduce the effect of malicious actors. Watching user comments and media attention to the asset can also assist with discouraging attacks and the spread of misinformation.
- 24/7 nature of the crypto market. Stock exchanges have fixed trading hours but the crypto market operates continuously, allowing for round-the-clock trading. This constant availability can intensify FOMO. Investors have a fear of missing out on opportunities that occur during non-traditional trading hours.
- The crypto market is highly influenced by social media and online communities. News, opinions, and rumors spread rapidly through platforms like Twitter, Reddit, and Telegram groups. Information about an asset shapes market sentiment and drives investor behavior. This interconnectedness accelerates FOMO. Individuals witness others profiting from certain cryptocurrencies. They feel compelled to join the bandwagon before they miss out on potential gains.
- Initial Coin Offerings (ICOs) and token launches. ICOs enable blockchain projects to raise funds by selling their native tokens to investors. When a highly anticipated ICO is announced, investors may fear missing out on the opportunity to invest early. This fear can lead to a frenzy of buying. Individuals rush to participate in the ICO believing the tokens will appreciate significantly in value once the tokens are available for sale.
- Potential for High Returns - FOMO can lead investors to take advantage of opportunities for significant returns on their investments. Investors that get involved with a cryptocurrency project early may benefit from substantial price increases. This is particularly true if the project is widely adopted and/or achieves significant milestones in a short period of time.
- Early Adoption Advantage - FOMO-driven investments can provide early adopters with a competitive advantage. Identifying promising projects before they gain mainstream attention helps investors secure tokens at lower prices.
- Market Liquidity - FOMO-driven buying pressure can increase market liquidity, resulting in easier and faster transactions. When investors rush to buy a particular cryptocurrency, the increased demand can lead to higher trading volumes. It also improves liquidity in the market.
- Positive Network Effects - FOMO can contribute to positive network effects within a cryptocurrency ecosystem. As more investors join a project due to FOMO, the project attracts additional users, developers, and partnerships. This strengthens the project's network and can increase its value.
- Emotional Decision Making - FOMO often leads to impulsive and emotional decision making. Investors driven by FOMO may overlook essential aspects, including project fundamentals, market conditions, and potential risks. This can result in poor investment choices and significant financial losses.
- Increased Volatility - FOMO-driven investments can contribute to increased price volatility. When investors rush to buy a cryptocurrency, the sudden surge in demand can cause prices to spike rapidly. After the initial excitement fades, the price may experience a sharp decline. This leads to significant losses for those who bought at the peak.
- Potential for Scams and Manipulation - FOMO can make investors vulnerable to scams and market manipulation. Fraudsters often exploit FOMO by creating fake projects or spreading misleading information. Further, manipulative traders often take advantage of FOMO-driven buying pressure to artificially inflate prices before selling their holdings.
- Lack of Research and Due Diligence - FOMO-driven investments often result from a lack of thorough research and due diligence. Investors may be tempted to invest based solely on hype and speculation. They may not fully understand the project's technology, team, and long-term potential. This lack of research can lead to poor investment decisions.