6 Factors That Drive FOMO in Crypto Trading

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As a researcher with experience in the cryptocurrency market, I believe that FOMO (Fear of Missing Out) is a complex phenomenon driven by several key factors. It’s not some mystical force on the internet, but rather a combination of external and psychological influences that can lead investors to make hasty decisions based on perceived gains and the fear of missing out.

When discussing the Fear of Missing Out (FOMO) experience in the context of cryptocurrency trading, some people view it as an enigmatic online influence that seemingly materializes from nowhere to fuel the popularity of newly emerged crypto assets.

However, reality is way more complex than that! 

When examining the price fluctuations of well-known cryptocurrencies and considering the impact of fear of missing out (FOMO), several key determinants emerge as significant. For a digital asset to spark FOMO and experience a surge in value, these factors must align harmoniously, resulting in this phenomenon.

In this piece, we’ll walk you through the complex chain of occurrences causing FOMO (Fear of Missing Out) and offer valuable insights for investors from understanding this trend.

What is FOMO?

From a researcher’s perspective, I would describe FOMO in the crypto ecosystem as follows: I’ve observed that investors experience a deep-seated fear and anxiety when they believe they have missed out on substantial profits from a specific crypto asset. The term “FOMO” encapsulates this feeling of apprehension, which is fueled by the perception of having missed the early gains. This collective unease within the crypto community can create a self-propelling cycle, causing prices to surge dramatically as more investors feel compelled to jump in and avoid missing out on potential profits.

Key Factors Behind FOMO in Crypto Trading

1. New Coins in the Market

In the realm of cryptocurrencies, novelty never ceases to abound. Consequently, it’s common for individuals who have grown weary of the market to find reasons to re-engage.

It’s equally crucial for investors to conduct thorough research before investing in new cryptocurrencies. With an abundance of crypto-related information and forecasts available online, it’s essential to seek out dependable and trustworthy sources before making a decision to join the bandwagon early on.

2. Role of Social Media

Social media acts as a rapid-fire platform for news dissemination. The algorithms of social media sites enable users to stay updated in real time with the latest cryptocurrency news, keeping them informed about any buzz surrounding a newly emerging digital coin.

Social media has a reputation for magnifying radical perspectives, making it easy for users to come across intense predictions about the future value of cryptocurrencies, such as “this upcoming crypto will be valued at X1000 by next year and not buying it is insanity.” These statements can quickly appear in your social media feeds.

As an analyst, I would initially approach such bold predictions with a degree of skepticism, carefully observing the market trends. However, if my news feed begins to fill up with similar prognostications regarding a particular cryptocurrency, I can’t help but feel a pang of fear of missing out (FOMO). The question then arises in my mind: “Could there truly be any disadvantages to investing a modest amount in this coin, especially if it continues to gain popularity?” Once enough investors entertain this very same thought, we witness the emergence of a significant phenomenon.

3. Strong Q1

As a researcher investigating human memory and perception, I’ve come across a compelling psychological phenomenon known as recency bias. This tendency is rather strong within us, making it easy for individuals to forget past events or experiences in favor of more recent ones. Consequently, people are prone to jumping on the bandwagon of new trends or ideas, often disregarding any earlier difficulties they may have encountered. When things take a positive turn, our memories of previous hardships seem to fade away. However, when circumstances begin to deteriorate, it becomes effortless for us to view the past in a less favorable light, as if things were never that good to begin with.

Based on Robinhood’s Q1 crypto trading report, a substantial rise in monetary activity is evident on their platform. This trend is likely reflected in other major exchanges as well, implying a robust Q1 performance for 2024. Investors hold the belief that the second quarter will continue to mirror this positivity.

The uncertainty about whether this situation will continue persists, but a strong first quarter performance can shift market perception. Consequently, investors will approach the second quarter with increased confidence and be more likely to make larger investments.

4. Media Hype

In recent times, it’s not only social media and crypto enthusiasts stirring up interest. Mainstream news outlets have hopped on board as well. Renowned newspapers, in their quest for readership and engagement, are equally eager for clicks and shares. As a result, they’ve taken an interest in newsworthy topics, with cryptocurrencies emerging as a lucrative trend over the last few years.

Legacy media reports lend credibility to cryptocurrency buzz, making it more trustworthy for investors over the age of GenZ.

5. Peer Pressure

When good fortunes abound, many jump at the chance to join in. This intensifies the fear of missing out (FOMO), as it becomes evident that people in your immediate social sphere are reaping substantial rewards. It’s no longer just about internet acquaintances making significant gains while you hesitate. Instead, it’s your workout companions, Uber drivers, and plumbers who are raking in the money, leaving you to ponder your next move.

You don’t want to be the only one left behind, right?

It’s important to keep in mind that even large groups of people can be erroneous in their beliefs or actions, and the notion that safety lies in numbers is actually a misconception. While more individuals participating in an activity may seem to reduce its volatility due to the smaller share held by each person, this assumption can be deceiving. Conversely, if a market is dominated by only a few entities, a singular decision from one of them could significantly impact the entire system. Human behavior, being inherently irrational at times, adds an extra layer of uncertainty.

6. Innovative technology

As a researcher studying the recent surge in cryptocurrencies, I believe the primary reason for their significant advancement in the current market lies in the vast expansion of crypto technology. In contrast to previous years, most of these digital currencies are now backed by substantial underlying utility, making them more attractive and valuable to investors.

AI tokens serve as keys to access specific functionalities within certain AI systems. The worth of these systems is determined solely by technological advancement and capability, intensifying the fear of missing out (FOMO) effect.

Countering FOMO in Investment Decisions

The apprehension of missing out on profitable investments (FOMO) holds significant influence in finance, yet it’s essential to recognize its limitations. While FOMO may instigate impulsive actions, it can also signal prospective wealth-generating chances. The crucial step is to distinguish between hype and genuine opportunities.

In January 2017, Bitcoin (BTC) saw a significant price increase. Those investors driven by fear of missing out (FOMO) may have hastily invested without thorough research. On the other hand, investors who had previously conducted in-depth analysis could have viewed this price surge as validation of their investment beliefs.

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2024-05-16 14:45