FOMO - When Fear and Greed takes the driver seat, and how to start fighting it 👊🏼

Most people heard about the term FOMO (Fear of Missing Out). In NFTs and cryptos, this is related to having a perception that others are making a good investment, and that you are missing out on it. It's an uneasy and often all-consuming feeling that you need to buy something. It is not new a phenomena, although it can be considered a recent term in the context of NFTs and cryptos.

With the rise of blockchain (crypto and NFTs) and its $3+ trillion overall market cap, hundreds of thousands of new people have been introduced to the concept of FOMO. Most people probably suffered from it at some point, I sure have, and still struggle with it. It is not always bad though, but more often than not, it is bad - both for finances and mental health.

The whole concept of FOMO is an oversimplication that has a lot of depth and nuances (market psychology, behavioural finance, mass hysteria). But as mentioned, typically, FOMO will harm an investor's portfolio of hodlings. There are many people that benefitted from FOMO as well. But from a regular investor's point of view, a portfolio largely based on FOMO will likely have a negative performance over time.

If it only was so easy though, not to give into FOMO. I've been there, quite sure you've been there too, and so has hundreds of millions before us.

FOMO is nothing new

Both fear and greed are two factors causing unpredictable movements and volatility in the stock market and blockchain financial markets. Behind it lies irrational market behaviour, at large scale, tightly related to mass hysteria.

On Wall Street, there is an old saying:

Financial markets are driven by two powerful emotions: greed and fear.

In the 1930s, John Maynard Keynes, one of the most influential economists in history, labelled this behaviour as "Animal spirits." It was in his book 'The General Theory of Employment, Interest and Money' where he prescribed the term to instincts and emotions that were apparent when guiding financial decisions.
An urge to action rather than inaction, where the action is driven by fear and greed, which causes a spontaneous sense of optimism that has no rational logic.

The notion of animal spirits dates much further back than Keynes. Philosophers, mathematicians and scientists have theorized and written about it since the 16th century, but in different contexts rather than economical and the financial markets.

One of the most famous investors of the 20th century, Warren Buffett, devised a rule that he described as follows:

Be fearful when others are greedy and greedy only when others are fearful.

According to him, it makes more sense to act in the contrary to the mood of the financial markets, largely because of fear and greed and the negative returns associated with the behaviours at play.

Why FOMO is so prevalent in NFTs and cryptos

Here are a couple of reasons why FOMO is so common in the blockchain space.

Multimillionaires and What ifs

The blockchain space is responsible for creating many millionaires over the last few years. The stories of people investing and speculating in Bitcoin and Ethereum at an early stage are many. Everyone knows a story of someone becoming multimillionaires from NFTs or cryptos.

There are also plenty of "fail" stories of people buying a small amount of Bitcoin very cheap and then selling when it reached a few thousand dollars. Hardly a fail imo, probably made good money even if they sold early. People are better off not thinking too much about "what ifs", and be happy with what they actually made, or avoided losing.

Both success stories and "what ifs" are triggers of FOMO.

Still massive potential everywhere

The ship for parabolic short-term runs in Bitcoin and Ethereum has sailed, but as we all know, the blockchain space is packed with opportunities. Every day there are new stories of people getting enormously rich here and there.

We are all aware of this potential, which causes FOMO.

Volatility

Another factor is volatility of NFT and crypto markets. Price depends a lot on how many people believe in the potential of an NFT or crypto. Since there aren't that many people dealing with some cryptos, it is easy to move the needle.

Prices rise and fall instanly.

Some people manage to time this well, but there is a far greater number acting on FOMO after a fact, and time their investment poorly. I'd argue that even very "skilled" traders that speculate in FOMO-type patterns could be outperformed (on average) over a 5-year period when compared to someone that strategically, through fundamental analysis buy top 100 blockchains without paying too much attention on the timing.

There is plenty of research on expert day traders in legacy financial markets that on average underperforms the yields of a person that just buys and hodls over a 25-year period. I'd be surprised if the same isn't true in our case, especially for cryptos. Both are similar types of financial markets, and predicting behaviour and market movements is extremely difficult. If someone is offering you a deal on a trading model that guarantees X% returns, chances are that the returns are negative over time (given enough sample, volume/time), it's just fancy lingo and clever patterns that will prove itself worthless over time. Again, there are exceptions, of course. Most likely, the truly successful trading models, that really do have good returns, will never be up for a limited buy offer.

"Buy the dip", timing the market, and predicting through trading patterns are all powerful hallucinations that guides FOMO decisions. More often than not you'll be too late to get a favourable position to make a profit.

Low barrier to entry

The low barrier to entry in blockchain investments is a double-edged sword. On the one hand, it is great that it is much easier to get started investing in NFTs and cryptos as opposed to legacy finance that is some countries is a privelege only afforded by the rich.

At the same time, when people FOMO into blockchain investments they do it without experience, pure speculation based on emotion, "I have a feeling". This leads to bad decision, often losses, and hard-learned lessons. At the same time, FOMO is a behaviour that is difficult to beat.

How to deal with FOMO?

First step of dealing with something is to first realize that one is exhibiting the behaviour. It largely comes down to acting on emotional decisions, rather than logical:

  • So many people are buying this, it's going to be huge, fuck it - LFG.
  • I won't be able to live with myself if this goes parabolic.
  • I knew the price would go up, fml, can still do a 5x, better late than never - LFG.

A good way to find out if you do a lot of FOMO:ing is asking yourself why you are about to buy this NFT or crypto. If your answer relates to fear and/or greed, you are about to FOMO.

Now, it is difficult to stop doing FOMO decisions. But you can at least start by reducing it. Here are some ways of doing so.

Mental detox

Starvation, fasting, cutting out certain foods, are effective ways of getting your physical (and mental) health back in check. The same is true if you do too much FOMO when buying and selling NFTs and cryptos. Disconnect, take some time off, even just counting to 10 or taking a cold shower before pulling the trigger on a buy can sober up your mind. It is healthy to step out of the echo chamber now and then.

Educate yourself

Education is good. Educating yourself online around personal finance and economy is more valuable than anything you will learn in school. Some things you can look into relating to FOMO:

  • Read upon statistics and realize that for every successful NFT or crypto there are hundreds of shit ones that will lose you money. Therefore, uneducated FOMO decisions will likely lose you money over the long run.
  • Earlier I mentioned cases of multimillionaries and what ifs, there are also plenty of stories of people losing everything due to FOMO. Read about these to gain perspective to help you reduce FOMO decisions.
  • Learn to identify FOMO-based scams, there are many rotten apples out there exploiting widespread FOMO, learn to avoid these.

Very little learning can take place without introspection. Take a moment to analyse your activity in the markets. If you think that you identify as a person that FOMO trade alot, chances are that you do FOMO decisions most of the time. Open a spreadsheet and list all your trades, Google Sheets through Google Drive is easy and free to use. Check your history and get a receipt in black and white.

If you are plus, ask yourself if the activity is sustainable. I was lucky and made some money trading shit coins, but pretty soon I realised that it is just that, shit. I stepped out of the echo chamber and took some time off. Today I have reduced FOMO decisions greatly, but not completely. Fear and greed is a difficult beast to beat.

Losing is a fundamental part of the game

Coming to terms with the fact that losing is a fundamental part of the game is difficult. The only way to get used to this part of investing is to get exposed to it. You have to lose money in order to get used to the idea of losing money.

Every experienced trader or investor knows that they will lose money now and then, there is noo shame in that. What experienced traders and investors typically do is that they do not risk too much money, also they tend to size their investments relative to their overall funds. Good money management foster good decisions, and it helps you sleep at night.

The main reason why people have a hard time overcoming this losing part. Where losing turns into a negative spiral that just feeds the FOMO is mainly because of poor money management. People risk money they cannot afford to lose. And this money is not distributed in a healthy way, too many eggs in one basket so to speak. You should only risk money that you can afford to lose (probably one of the most common "advanced" sentences on this site), this is so fundamental that it cannot be stressed enough. It will make you a better investor, and you won't compromise your health.

Avoid FOMO-based scams

Before pulling the trigger, take a step back and ask yourself:

  • "Should I invest 30% of my funds in CumRocket?"

This pause will give you a small breathing room away from that zone of hysteria which is triggering the FOMO. Hopefully, you will arrive at the decision of:

  • "You know what, investing 30% of my funds in CumRocket isn't a good idea after all, this cum-powered rocket will likely fail hard."

If you are still at a: 

  • "Maybe I should invest, this community is active and lol CumRocket"

Please realize that the community of CumRocket is largely driven by FOMO and there is no logic at play. Emotions of fear and greed are powering the market, probably there are a couple of actors with malicious intention driving it. Pump and dump is the recipe.

If you think that the project is a scam, most likely it is a scam. You might be wrong. But seriously, don't invest your funds into something that you suspect is a scam - stay away.

Both victims and perpetrators

I've probably acted both the victim and the perpetrator of FOMO.

FOMO has led me to speculate in shitcoins and suffered both losses and gains.

I also write about NFTs and cryptos regularly. I share these writings in social media and participate in discussions about projects. My intention is never to spread FOMO. It is rather an unintentional side effect of being engaged with financial assets and markets. A by-product. My goal is to share thoughts, ideas, and resources. I am generally very excited about blockchain technology, and Secret Network in particular.

Sometimes I am genuinely excited about a project and its prospects, and other times I am less excited about the prospects of a project. Regardless of my perception of something, I want to share thoughts and ideas about it. I enjoy sharing content around Secret Network and specifically Secret NFTs. Mainly to provide resources and insights. Me being excited and pushing a project isn't ill-intentioned, but it could potentially cause FOMO with others.

On some level, the same is true for literally anyone engaging with financial markets through different information or communication mediums. Just that the level of impact relates to reach and influence. Different levels of impact.

It also relates to intention, no morally "good" person would spread FOMO (and FUD) with malicious intent. However, there are plenty of bad people around, so this happens regularly in all mediums. This is obviously very different from participating with good intentions. My point is that, even good intentions can have unwanted effects. What is important, in all cases, is that people take responsibility for their actions. Always DYOR. DYOR is often used as a catchphrase, but doing your own research, will allow you to kind of exit that zone of hysteria where FOMO is triggering the decision, this will give you some perspective when making a decision.

This article probably won't stop anyone from making too many FOMO decisions, I'm not that naive. The only way to overcome bad behaviours is to work on them. Replace bad behavious with good behaviours. Realize the triggers of the decisions, and replace that trigger with a new positive behaviour.

Even if you cannot stop FOMO trading, you can at least reduce it. If you struggle, seriously, take a step out of the ecochamber for some time, disconnect, and come back with a fresh mind. Even better, come back with a solid gameplan.

Side note: I felt like writing about this topic because of the ongoing debate of mass formation psychosis in relation to the pandemic. I won't weigh in on that particular debate. But I am of an opinion that society today engage with mass hysteria in various forms every other day. Mass formation psychosis is just a fancy word for mass hysteria. FOMO is a shade of mass hysteria.

Binance Crypto Exchange

More exchange deals:

WAGMI >
Proceeds go to coffee, crypto, and NFTs - which then turns into content magically.