An analysis of FOMO in recent crypto trading
Out of the three mentioned above, two are projects that I am heavily optimistic about and one that I find questionable. Despite this core difference, they have all experienced major price fluctuations that follow the FOMO (fear of missing out) — FUD (fear, uncertainty, doubt) cycle, which is best explained by this article here.
See IOTA’s price chart:
- Wednesday, December 7, 2017 — IOTA spikes 90% based on rumors of a partnership with Microsoft (source)
- Followed by these rumors, many cash out while others buy in.
- Tuesday, December 12, 2017 — people find out that Microsoft is not actually partnering with IOTA, but is a participant in it’s data marketplace. Price drops significantly (source)
Below is RaiBlock’s price chart:
- Starting around December 14, people start buying up XRB upon hearing news of it.
- Some people begin to cash out, lowering the price.
- Unfortunately, the two exchanges that trade XRB, BitGrail and Mercatox, suffered from attacks. Hence more price drops.
- As the exchanges get back up, the cryptocurrency makes a rebound.
And here is Ripple’s price chart:
- December 13, 2017 — Ripple’s price begins surging.
- December 14, 2017 — News coverage of Ripple including this Forbes article bring those with FOMO in to drive the price to an all-time high.
- December 15, 2017 — Slight sell-off after what a “flash analysis” signals to sell given the coin’s quadrupling in value.
- See here for the article… such types of analysis focus solely on trading momentum and price behavior, completely ignoring the long-term prospects of a coin.
Prices do not reflect fundamentals
Looking at these price charts, it’s clear that people are trading based on emotion — the uninformed speculator making decisions with either FOMO or FUD, and the gambler based on price swings. How else could there be such drastic price swings based solely on rumors?
This is uncharted territory
Furthermore, the speculation in tokens runs rampant:
- Cardano, the 7th highest coin by market cap ($12.1B), has no tangible running product.
- EOS, a coin still in the ICO (initial coin offering) phase, has a market cap of $5.8B that would place it as number 12 on the list and will be running the ICO for almost a whole year.
- Ripple is a technology that is meant to be used by financial institutions and the currency, XRP, is likely to be traded heavily by institutions. This puts individual investors at a heavy disadvantage.
So, what do we do to reduce the extreme amounts of noise in this space and not become a victim of the FOMO-FUD cycle? Try to think long-term.
