The financial market is a dynamic environment that goes through ups and downs in cycles. The…
FUD is another crypto acronym we have to learn after FOMO. It also works to describe the many emotions that investors feel.
We explained about the Crypto Fear and Greed Index and how it measures the sentiments of investors towards the market. This time we will learn another terminology to help you better understand your behavior in crypto trading.
Let’s get started with understanding what FUD means and how it affects us.
FUD is an abbreviation for fear, uncertainty, and doubt. Generally, these three reflect a pessimistic mindset.
One thing that can trigger FUD is a negative market movement that is dubiously simultaneous with huge movements in the price of Bitcoin. In turn, these activities have a long term impact on the overall condition of the cryptocurrency market and value of digital assets.
History of FUD
The term has existed for more or less a century already. It rose to popularity around the 1970s. It is possible that the FUD’s usage began in 1975 when an IBM executive officer left to build a different company. IBM used FUD to prevent the clients from quitting their patronage of their products.
Comparing FUD to FOMO
The term FUD is not synonymous to FOMO (fear of missing out). In a state of FOMO, people tend to copy what others are doing. It becomes a driving force to join the bandwagon. This is a result of people being afraid to miss out on great opportunities.
On the other hand, FUD is a contagious mindset that affects others negatively. Social media plays a great role in the dispersion of this way of thinking.
If the markets are trending upwards, FOMO is more likely to occur. However, if the downward trend happens, investors are more likely to experience FUD.
The simple analogy you can use to understand the difference between FUD and FOMO. FUD is similar to fear and FOMO is the same as greed.
In addition, the acronym HODL (hold on for dear life) is a response to either of these phenomenon. If an investor feels afraid, they do panic selling or HODL. Conversely, if they feel greedy, they might buy a lot of digital assets or hold on for dear life.
When Does FUD Usually Occur?
When a crypto coin or token’s value is dropping, an investor may feel FUD. One of the main indicators is Bitcoin’s price because other altcoins follow suit when its value decreases. When the price of Bitcoin reduces, it is usually a signal that the market will soon enter a bear phase.
FUD in this case makes investors slow down in their purchases. They don’t put out capital and some of them decide to liquidate their assets.
Hacks and Scams
Cryptocurrency is exposed to many risks. One of the popular ways for crypto scams to occur is through Initial Coin Offerings. In addition, there are also phishing scams, hacks, and 51% attacks.
These security problems all cause negative emotions among investors because they can lose all of their capital funding with one wrong choice that they make. Once investors start doubting the safety of the exchange that they are using, FUD will take over.
Regulation From The Government
Investors and traders are divided into two. Those who believe that decentralization is crucial to cryptocurrency’s continuous success and those who believe that some sort of regulation is still much needed.
Governments and financial authorities play a part in the global FUD. For example, when a country’s government announces that they will not support the usage of cryptocurrency. As a result, people become distrustful of it.
Exaggeration of any event can lead to FUD. Investors and traders should always be aware and alert so that they don’t get swept away with this pessimistic mindset. Some malicious actors take advantage of fear, uncertainty, and doubt to push people into mass buying or panic selling.
FUD Real-Life Examples
Here are three incidents that caused fear, uncertainty, and doubt among crypto investors.
Famous persons like Peter Schiff and Nouriel Roubini show strong skepticism towards Bitcoin. They refer to it as a fad. Since it is a fad, people should expect that its value will reach zero sometime in the future.
Launched on October 18, 2021, Bakkt is a crypto trading platform. It was part of the trending news in the cryptocurrency community back in 2018. However, its launch coincided with the day that Bitcoin’s price dropped. At that time, btc was at only 2000 USD a day.
This is one event where FOMO transformed into FUD quickly.
China’s Blockchain Stance
President Xi Jinping’s statement saying that he supported blockchain caused an event known as China FUD.
He believes that China should be at the forefront of harnessing the potential of blockchain technology. Popular investors believe that this statement has an impact on the crypto market.
Likewise, when China banned Bitcoin, it caused waves of FUD in the Chinese crypto community.
By and large, beware of false information and tactics like the pump and dump scheme that intends to make the crypto community anxious towards digital currencies. Social media such as Twitter and Discord are breeding grounds for spreading FUD.
Cryptocurrencies and blockchain technology are still young concepts but both continue to prove its efficiency and effectivity in enhancing financial inclusion. Also, compared to fiat currencies, crypto assets empower the people more because it is decentralized.
Do not allow FUD to affect you. This is why it’s important that you write down your strategies and goals. Most importantly, you have to be seriously committed to your plan.