The phenomenon of FOMO—a desire or fear that one will miss out on something—has always existed, long before the internet gained widespread use. But with today’s connectedness—as well as its application in financial markets—FOMO has become even more pronounced. In this context of cryptocurrency investments, FOMO is often one of the driving forces behind the volatility of most cryptocurrencies, leading to wild price fluctuations, extremely impulsive Investing Behaviors, and a lot of speculation surrounding what might happen in the future.
When investors see other investors making (sometimes astronomical) returns on the same cryptocurrencies they invest in, it can lead them to make irrational decisions, as their emotions overtake logic. In fact, FOMO has played such an important part in influencing the Cycle Dynamics of this market and continues to be one of the biggest contributors to what many call the 'Cryptocurrency Bubble'.
What Is FOMO and Why Does It Matter in Crypto?
The fear of missing out (FOMO) is the anxiety associated with feeling as though other people are profiting from something while you're not being able to take advantage of it. There are several factors in cryptocurrency that contribute to the feeling of FOMO, including:
Live price charts
Viral success stories
Social media buzz
Narratives communicated by social media influencers;
Rapid price changes;
Additionally, actual cryptocurrencies are traded all day, every day, making them volatile as compared to other investments. The rapid pace and volatility of crypto create a place for the potential for FOMO to develop, leading people to purchase well before knowing all the potential risks.
How FOMO Contributes to Market Bubbles?
A market bubble occurs when asset prices rise far beyond their intrinsic value, largely driven by speculation rather than fundamentals. FOMO acts as fuel in this process.
Here’s how the cycle typically unfolds:
Early adopters invest based on innovation or long-term belief.
Prices begin to rise, attracting attention.
Media coverage and social buzz increase.
New investors rush in out of fear of missing gains.
Prices surge rapidly with little fundamental backing.
Eventually, reality sets in and prices correct sharply.
This pattern has repeated itself multiple times in crypto history, reinforcing the idea of a recurring Crypto Bubble driven largely by emotional decision-making.
Fear & Greed Index
The Fear & Greed Index is a market sentiment indicator that shows whether investors are feeling fearful or greedy at a given time. In the crypto and stock markets, extreme fear often signals panic selling and potential buying opportunities, while extreme greed can indicate overconfidence and possible market corrections. Traders and investors use this index to understand emotional market cycles rather than relying only on price movements or technical indicators.
The Role of Social Media and Influencers
The primary way that social media can fuel FOMO is through the abundance of information available, with just one post about large profits or the next best cryptocurrency creating a frenzy of buying activity. Influencers can unintentionally create even more fear of missing out on social media, primarily through:
Price Predictions - Posting predictive price points without context.
Highlighting Short-Term Profits - Placing short-term gains above long-term risks.
Creating a Sense of Urgency - Using the phrases "last chance" or "do" not miss this.
For novice investors, distinguishing between true innovation and speculation is nearly impossible.
Psychological Triggers Behind FOMO-Based Investing
Various cognitive biases that can affect an investor's perception of FOMO in the crypto market include:
Herd Mentality: Individuals tend to follow the actions of others instead of making an independent decision on their own analysis.
Recency Bias: The assumption that gains experienced in the near past will continue on an unbroken upward trajectory into the future.
Confirmation Bias: Seeking out information that supports one's preconception.
Overconfidence: The belief that making rapid profits is easy and can be repeated.
Using these cognitive shortcuts to reach a decision can distort an investor's ability to make sound investment decisions and ultimately leave the investor open to greater losses.
FOMO vs. Fundamental Investing
Understanding the difference between FOMO-driven decisions and fundamental investing is crucial.