As prices in the crypto market start to climb, there is a common feeling among investors. It’s known as FOMO, or Fear of Missing Out.

Markus Thielen’s recent analysis from 10X Research shows a surging interest in Bitcoin. It predicts a surge past $70,000 and a new all-time high price. This has traders and investors eager to jump in before it’s “too late.” 

But what exactly is this FOMO everyone’s talking about? Let’s break it down and look at why FOMO is making a comeback, what drives it, and how to handle it.

What is FOMO?

FOMO is the anxiety or feeling that others are having rewarding experiences or opportunities that you’re missing out on. In investing, FOMO means rushing to buy into a rising market. It is driven by the fear that everyone else is making money while you’re sitting on the sidelines.

Historically, FOMO has always played a part in investing. It’s evident in the gold rushes of the 1800s and the dot-com boom of the 1990s. Today, it’s easy to see Bitcoin or Ethereum prices spike and feel the urge to buy in, fearing that you might miss the next big rally.

Tweets such as the one below may influence traders to make hasty decisions instigated by FOMO. 

There are stories of early bitcoin traders who are now swimming in millions. They may influence investors to rush into trading without considering the potential impact of their trades. But acting on FOMO isn’t always the best move, and it may lead to impulsive decisions that can backfire.

The Allure and Caution of FOMO in Investing

FOMO can either provide rewarding or catastrophic results. On one hand, it’s hard to resist the excitement of a soaring market. Investing in FOMO leads to a rush of buying, which can actually drive prices even higher in the short term. 

On the other hand, FOMO is very risky. When people invest because they’re afraid of missing out, they’re often making decisions without fully understanding the market. This was especially true during the 2017 crypto boom, where many people invested in digital assets, but the markets crumbled soon after.

What Triggers FOMO?

Several factors can trigger FOMO among investors. According to Thielen’s analysis, one of the big triggers is the surge in market liquidity. For instance, after the U.S. Federal Reserve’s recent move to ease monetary policy, nearly $10 billion in stablecoins flooded the crypto market with new liquidity. This influx of cash made investors eager to buy Bitcoin and other digital assets.

Another major trigger is positive economic news, like the recent easing of policies in China, which could lead to more capital flowing into digital currencies. This makes it easy for people to feel the pressure to act quickly, fearing they’ll miss the next big move. 

FOMO in Crypto vs. Stocks

FOMO isn’t limited to just cryptocurrencies as also a common theme in stock market investing for beginners. The same emotional impulses can lead investors to make risky moves without proper research. However, the crypto market tends to have even more intense FOMO moments due to its round-the-clock trading and extreme price swings. A case in point is Bitcoin, which can swing by double-digit percentages in just a few hours. Investors may feel like there is no time to waste if they want to catch the trend.

What Drives FOMO in Crypto Trading?

  1. Market Sentiment and News: Positive headlines such as a major company investing in Bitcoin or new regulations can create a rush of optimism. Price targets such as Bitcoin aiming for $65,000 can get people excited and drive a buying frenzy.
  2. Social Media: Platforms like Twitter and Reddit can amplify FOMO. Stories of investors making huge gains and speculation about the “next big coin” may lead to an investment rush.
  3. Liquidity Boosts: The recent increase in stablecoin minting has provided a huge injection of liquidity. When the conditions seem right, many investors jump in hoping for rapid gains.

Why Emotions Matter in Investing: A Prehistoric Analogy

FOMO taps into urgency, which is a basic human instinct. During the time of our prehistoric ancestors, urgency was often a survival tactic. If you hesitated too long, someone else might have caught the big prey. In today’s world, that same instinct can make people panic about missing out on a big market opportunity. 

Just like our ancestors needed to balance urgency with caution, today’s investors need to manage their emotional reactions. Knowledge allows investors to see beyond the immediate excitement and focus on the bigger picture.

Balancing Long-term Goals with FOMO

It’s normal to feel a bit of FOMO now and then, especially when it seems like everyone is making money. But successful investing usually comes down to staying focused on long-term investment strategies, not short-term hype. Those who keep their eye on the bigger picture often come out ahead.

That doesn’t mean ignoring the excitement entirely. Sometimes, it’s worth considering new opportunities. But knowing your own goals and how much risk you’re willing to take can help you decide when to act and when to sit tight. 

Staying Disciplined in a FOMO-Filled Market

At the end of the day, managing FOMO is all about discipline. A well-thought-out investment plan can help you avoid the temptations of jumping on the latest trend without careful thought. Avoid chasing trends, and stick to your long-term vision. 

In the financial markets, those who manage to keep a cool head and stick to their plan are the ones most likely to thrive. Remember, it’s not just about catching the latest trend, but about making sure you’re prepared for whatever comes next.

Disclaimer: All materials on this site are for informational purposes only. None of the material should be interpreted as investment advice. Please note that despite the nature of much of the material created and hosted on this website, HODL FM is not a financial reference resource and the opinions of authors and other contributors are their own and should not be taken as financial advice. If you require advice of this sort, HODL FM strongly recommends contacting a qualified industry professional.