Cryptocurrency projects are some of the fastest-developing investments, with new assets being delivered to the market every now and then. Considering that governments do not control them, these coins are volatile, and their value depends on all actors leveraging their benefits, from investors and traders to miners and developers.
This uncertainty is making it difficult for users to determine future trends, even for established projects like Ethereum. Making an accurate ETH price prediction requires thorough research on historical prices and technical indicators. However, sometimes analysis won’t suffice when something monumental happens in the industry and affects all prices.
The lack of certainty affects investors considerably because they’re prone to making poor decisions due to fear of too much excitement. In the crypto sector, these effects are called FUD or FOMO most of the time, but a new term, REKT, has become quite popular, so let’s see what they’re about.
What Is FUD?
FUD stands for fear, uncertainty, and doubt, and it’s usually the aftermath of negative and misleading news that interferes with investors’ decisions. It impacts market behavior by leading to panic selling, which causes prices to plummet. What makes it impactful is that it’s often triggered by rumors and false claims on social media that look to undermine the market.
This makes investors feel:
- Afraid, as the information seems to put their investments at risk;
- Impatient, so they’re constantly checking open orders and positions;
- Indecisive about their next step, especially when lacking technical and fundamental analysis knowledge;
Investors can successfully face FUD by conducting thorough research and educating themselves on the broad range of cryptocurrencies. It’s also recommended that they have a trading plan at all times so they can evaluate risks and potential profits based on their usual approach.
What Is FOMO?
FOMO is known as the fear of missing out, and it’s one of the most detrimental to investors’ mental stability because it induces anxiety about missing out on a lucrative opportunity. Thus, users buy impulsively in hopes they will capitalize on their gains, and they can lead to massive volatility in the market, driving prices up in a short time. Investors must understand how FOMO works to be able to stop it, which usually shows up through:
- Obsessively checking social media for crypto news;
- Constantly calculating how much they could make if they buy a certain asset;
- Investing in a cryptocurrency only because it’s become popular lately;
Relying on trusted social media outlets is one of the best ways to stay informed and avoid panic. However, learning from past mistakes is important as an investor because it allows you to reflect on past moments of selling due to panic. Finally, remembering that the market is cyclical and will normally have bearish and bullish periods can stabilize one’s feelings.
What About REKT?
The REKT slag term isn’t used that often, but it reflects an investor’s reality ― experiencing financial loss. Getting wrecked in the market usually happens due to poor investment choices, so bad trades and market downturns can be pretty detrimental to mental health, sending the user into a negative spiraling moment.
Those who experience it are most likely to feel lost, as they failed to protect their investments. However, this might not be enough motivation to keep learning and experimenting with cryptocurrencies, so they might buy that high-priced cryptocurrency again and watch it drop until leading to losses.
Thus, the main solution involves researching, but other strategies, like diversifying one’s portfolio, are always a good idea. Spreading investments across different coin projects chosen by industry, use cases, and purpose can protect their value from massive volatility. Finally, setting stop-loss orders helps automatically sell assets when prices decrease to a certain level.
Biases In Crypto Investments
Bias is what affects an investor’s decision the most because they might develop them in time but hardly seize their presence when making a decision. These predetermined ideas interfere with logic, and there’s a vast array of biases that investors must know about, such as:
- The confirmation bias makes us value information that supports our pre-existing beliefs, so the mind ignores contradicting evidence;
- The overconfidence bias makes investors believe their skills are above average, which leads them to take huge risks and experience considerable financial losses;
- The anchoring bias makes evaluation based on the past, not current potential, due to investors’ reliance on the first piece of information they have;
Most of the time, these biases come along with other psychological curiosities, contributing to emotion-based decisions. For example, the bandwagon effect makes people adopt particular views on the market due to the content they consume. Still, algorithms fuel exactly what people see, so it’s like a never-ending circle.
How To Avoid Emotional Investing
Emotional investing is dangerous because it lacks technical analyses based on facts and calculations. Yes, users must be wary of sudden changes in the market due to external factors, but that doesn’t mean they should act out of fear. In many cases, people underestimate the risks of the market but are the first to panic sell.
The best method to settle these emotions is to cling to well-developed strategies. For example, dollar-cost averaging implies investing the same amount of assets regularly at a predetermined interval, which will strengthen the portfolio and sustain most downward trends.
Checking the level of fear and greed in the market is also a safe way to tell where investors are heading. Sometimes, it’s best to follow, but that’s not a general rule. The Fear and Greed Index measures changes in volatility, social media, and many other factors that lead to changed investor behaviors, which can forecast future prices.
Are You Affected By Emotions When Investing?
Investing in a young market like the crypto industry can be difficult due to volatility and uncertainties. Therefore, investors are prone to fear and anxiety, often known as FUD and FOMO, but also REKT when they’re constantly losing their finances. These emotional effects come from social media influences and a lack of proper research, but they can also happen due to pre-existing biases.
