How does the FOMO effect affect Bitcoin?

Lukas Wiesflecker
Apr 1, 2020 · 5 min read
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Photo by Chris Liverani on Unsplash

Nowadays we often feel that we are missing something important. We are constantly trying to keep up to date with the most important events in politics and business. At the same time, we do not want to lose touch with any of our social contacts and want to be informed about their events.
The urge to always be at the top of the information chain is usually stronger than reason. The FOMO effect often manifests itself in that we focus almost exclusively on one particular thing. Even if we know that this thing is not really going to change in the near future.

What is FOMO?

The term FOMO has become increasingly popular due to the rapid growth of social media. The term is also often used in connection with financial markets. FOMO (Fear of missing out) means something like “the fear of missing something” and is therefore self-explanatory. Especially the networking through the internet fires the FOMO effect enormously. But we can also perceive this effect in our daily social interaction with our fellow human beings. Driven by the addiction to updates, many people lose sight of their surroundings and lose themselves in their smartphones and social media apps. Behavioral researchers have therefore long since called the FOMO effect a serious risk with a high addiction potential.

How does the fear of missing something develop?

Information collection is a very basic process in humans and immediately essential for survival. The better you can filter and utilize information from your environment, the higher is your chance of survival. Therefore this process has been part of our brain since ancient times.

Even if nowadays survival itself no longer depends on it, it can still have a decisive influence on the quality of life. Because it can often pay off to know about events before anyone else. On the contrary, not knowing about certain events can have a significant disadvantage. This is the case in many financial markets, for example.

What influence does the FOMO effect have on the Bitcoin price?

Bitcoin is basically a product that is regulated by price and demand. The higher the demand increases, the higher the price will adjust and vice versa. Now we can assume that the market is monitored by the participants around the clock. Every change in the price is immediately picked up and interpreted by them, followed by a positioning. Every trader on the market tries to find an optimal entry point for himself. The more people find an entry at the same time, the higher the demand and the higher the price. And the higher the price rises, the more people want to find an entry to profit from the price increase. They are guided by the fear of missing the price increase and try to place themselves quickly on the market. This creates a direct interaction between the FOMO effect and the price trend.

How can you use the FOMO effect for yourself?

The best way to benefit from the FOMO Effect is to avoid being influenced by it yourself. In the best case, you have already positioned yourself before the hype about a price increase sets in. For this reason, investors should monitor the market continuously to be able to react quickly. If an unusually strong rise has already become apparent in the price trend, it’s usually too late and the entry point has already been missed. The better you can estimate how much a project could trigger the FOMO effect in other participants, the better your chances of an early placement. Good indicators of the FOMO effect are positive news and statements, as well as announcements and events.

However, you should always try to assess the current situation as rationally as possible. Because even if you may not notice it right away, you may already have fallen victim to the FOMO effect.

Scientific studies on the FOMO effect

Since the fear of missing something (or having already missed something) is a psychological effect, there are plenty of scientific studies on it. The medical doctor Dr. Eckart von Hirschhausen, for example, has already dealt with the topic and published an interesting report on it in the magazine Spektrum. He describes how he himself was affected by FOMO long before the study. In particular, he describes the negative feeling of having missed certain things in the past as a major factor for FOMO. Likewise the doubting of decisions made.

According to a study from 2018, FOMO particularly affects younger people. At a US college, first-year students were surveyed for more than seven days with various surveys about their friends’ activities. They were asked to judge whether their friends were doing something better than themselves at that moment. And the results showed that FOMO can be a real catalyst for negative moods. Because while the students were usually working on a homework or in class, they always found their friends’ situation in that moment to be better. So the FOMO effect was always strongest when you had something important to do yourself. They also showed signs of sleepiness, stress and negative mood.

Long-term consequences of permanent stress

The drive to constantly update and enrich oneself with new information can be an enormous stress for the body. Because the brain has to continuously select between useful and useless information. Always with the thought in the back of my mind of missing something important. Thus the body produces stress hormones, such as adrenaline and cortisol, which are supposed to stimulate stronger performance. The consequences are imbalance, severe restlessness, irritability and insomnia. If the body is now continuously exposed to such conditions, at some point it can no longer meet the high demands and capitulates. The diagnosis is then often burnout and depression. Too much workload and high pressure are often cited as the primary causes of such illnesses, but often insignificant things are behind them. For example, treatment would rarely be based on the fear of missing something. For this reason, one should act early for the sake of health, if corresponding symptoms occur.

Conclusion: emotions are not good indicators

Even though the FOMO effect can lead to success in exceptional cases, the risk is usually higher and the strain on the body is not worth the effort. In most cases it is pure luck or coincidence if one attributes the success for a successful trade to one’s own emotions. The gut feeling is just a feeling and is not based on any fundamental data that can be used for price analysis. Likewise, it often turns out to be the wrong decision to chase after hype when it is already at its peak.

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Lukas Wiesflecker

Written by

Talk about crypto stuff, personal development, entrepreneurship, travel experiences, and things that inspire me! Whatever you do, do it with love and passion!

Data Driven Investor

empower you with data, knowledge, and expertise

Lukas Wiesflecker

Written by

Talk about crypto stuff, personal development, entrepreneurship, travel experiences, and things that inspire me! Whatever you do, do it with love and passion!

Data Driven Investor

empower you with data, knowledge, and expertise

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