FOMO can affect investors’ decision-making, creating too much uncertainty and pressure to keep up with the volatile crypto trends. The stress about missing crypto trading opportunities not only leads to impulsive investing decisions but also seriously affects mental well-being. What should you do when you feel the ‘fear of missing out’ is creeping into your previously logical crypto trading strategy?
FOMO is an abbreviation of the so-called “Fear of Missing Out.” What is it exactly and why does it disturb about two-thirds of young adults today?
FOMO in a Nutshell
The term “FOMO” is often attributed to Patrick J. McGinnis, an American author and venture capitalist, who mentioned it in a 2004 article titled “Social Theory at HBS: McGinnis’ Two FOs,” for The Harbus, the student newspaper of Harvard Business School. Along with the “Fear of Missing Out,” McGinnis introduced the concept of “FOBO” (Fear of a Better Option) in his paper.
Whether he was the first to coin the term or just the person to popularise it, McGinnis used FOMO to describe the anxiety many people feel when faced with endless social opportunities they are not pursuing. FOMO is driven by social comparison and the perception that your peers have more fulfilling or exciting lives, amplified by (often fake or exaggerated) social media portrayals.
While similar feelings were previously noted by psychologists, the fear of missing out on potentially valuable or enjoyable experiences aggravated with the advent of social media such as Facebook which launched precisely the same year McGinnis’ article saw the light of day.
This way, it’s already been twenty years since FOMO became a popular concept in psychology and social discussions, especially in relation to the impact of social media on mental health. In some time, FOMO gained more prominence in the financial industry as well.
As investing grew more and more commonplace, facilitated by user-friendly simple investing apps, novice investors, who are often guided by gut feelings and emotions rather than clearly-defined strategy and economic knowledge, witnessed a lot of FOMO while navigating the markets. It is especially evident in volatile segments such as crypto trading which often depend on social media sentiment as much as people driven by FOMO themselves.
FOMO in general can lead to compulsive checking of devices, social anxiety, concerns about self-worth, and lower life satisfaction. Psychologically, it is linked to unmet needs for group belonging and fulfilment. When it comes to the investing niche, FOMO often leads to impulsive and risky decisions, as investors feel pressured to join popular trends or hot markets. However, while they try to avoid missing potential gains, FOMO-driven investors often lose their money instead.
FOMO and Crypto Markets
When a person is guided by a fear of missing out, they may buy overvalued assets or invest in shady crypto projects without proper research or strategy. Let’s recall a ‘Squid Game’ inspired investing frenzy of 2021 that ended up in scammers getting away with millions of dollars as an example.
When the token named after the viral show topping the charts in 94 countries emerged on the market, people rushed to buy it and SQUID skyrocketed 43,000% in a few days. It was supposed to be used to play online games based on the popular Korean streaming series with real-life prizes. Few investors paid attention to a suspicious whitepaper or a number of red flags. One of the reasons is that the token had limited supply and everyone was afraid to ponder too long until it was sold out. Reportedly, it did sell out in seconds. FOMO in action.
The emotional pull of FOMO can also result in poor trading timing, e.g. buying high and selling low, as people react to hype and market swings rather than rational analysis. It may be critical in day trading strategies when investors aim to capitalise on short-term price movements, leveraging market volatility to generate profits. It is often rewarding but also very risky as you might be tempted to do what others do without knowing or caring for their reasoning.
This herd mentality can amplify market bubbles, add to crypto market volatility and lead to financial losses when trends reverse. Riskier, smaller cap and less profitable crypto assets are more susceptible to FOMO and emotion-driven market swings. Their market status may change abruptly due to positive or negative investor sentiment that has nothing to do with logic.
How do you Avoid FOMO Impact?
It is difficult to estimate exactly how many investing decisions are made out of FOMO. However, peaking transactions that follow media hype around a cryptocurrency suggest that a significant share of crypto investors are following sentiments rather than other meaningful market indicators. A recent survey by the CFA Institute and the Financial Industry Regulatory Authority Investor Education Foundation found that over 40% of Gen Z start investing because of FOMO. At the same time, not every beginning investor acknowledges the FOMO drive behind their decision to invest, so the actual share might be greater.
Once FOMO gets into you, it’s hard to control. It takes high emotional intelligence and self-regulation levels to understand what you’re feeling and why, not to mention structuring your thinking and reducing the influence of subconscious reactions on rationale. However, certain practices and habits will help you manage FOMO impact on investing decisions.
- Limit Social Media Exposure. Following 15-year-old self-made Bitcoin millionaires on social media may depress you rather than inspire. If you notice negative feelings, like anxiety, triggered by crypto twitter posts, limit media pastime and focus on solid market analysis instead.
- Practice mindfulness and emotional regulation. Meditation, deep breathing exercises, and cognitive reframing can help a person get in better contact with their emotions, and stay calm and focused during decision-making. It is useful in any situation, not only when FOMO-driven thoughts arise. Mindfulness can help reduce impulsive actions and restore your critical thinking.
- Personalise your trading strategy. To be successful at crypto trading, you need a strategy. Make it personalised. Focus on your personal goals, available assets, individual risk tolerance and acceptable balance of profit and loss. Remind yourself that you don’t need to be part of every trend to be fulfilled. Don’t stray away from your goals because of someone else’s experience. We’re all different as well as our financial situations and priorities.
- Change focus from negative to positive. Fear and greed are not your best advisers. If you focus on what you might be missing out on, you get a negative motivation. Change your mindset and shift focus. Check what you’ve already got. Think if it’s worth risking without proper consideration. Appreciate your investing achievements to realise your existing strategy is already paying out.
- Educate yourself and analyse. Take time to think critically and dig deeper into your market research. Ask yourself what assumptions you’re making about a particular market trend or investment asset — what’s backing them up? Don’t just go with one source; check around to confirm the info and question any theories. Look at different perspectives, and don’t rush. Weighing opposing arguments can give you a clearer view.
- Use decision-making tools. Checklists, decision matrices, and decision trees can help individuals structure their thinking and reduce the influence of biases. If it seems too hard, make use of AI assistants that can sum up numerous information sources and help you with detailed analysis. However, do not fully shift the responsibility to a machine. It is a helper not a decision-maker. Take your time to figure out what the issue or opportunity is and make informed decisions based on multiple data points.
- Leverage professional help. If your FOMO is too hard to overcome, consider trusting a professional with your investment portfolio. Financial advisers and portfolio managers are licensed professionals with knowledge in the sphere. Most wealth managers today are supporting crypto assets along with traditional ones. Automated platforms can also use algorithms to manage portfolios, often with lower fees and minimal human interaction. They, for sure, are not guided by emotions.
