Lily R.
Lily R.
Nov 06, 2022

What Is FOMO And How Can It Lose You Money?

tl;drFOMO (Fear Of Missing Out) is an emotional response to the belief that one is missing out on an exciting event, experience, or investment opportunity. FOMO includes anxiety and apprehension and often leads investors into making impulsive decisions so they don’t “miss out” on making a big profit. However, these decisions often lead to drastic money losses instead of making any profits. Keep reading to learn more about FOMOs and how you can prevent a tragedy from happening in your portfolio!
What Is FOMO And How Can It Lose You Money?
What Is FOMO And How Can It Lose You Money?
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What Is FOMO?

FOMO is an acronym for Fear Of Missing Out and refers to a feeling of anxiety that a person is either unaware of or is missing out on an event, experience, or even investment decision. In crypto, FOMO can also refer to a type of news with headlines, such as “hurry before you miss this investment opportunity”. 

History of FOMO

The term FOMO was first used by Dr. Dan Herman, a marketing strategist and researcher. He published his academic research on FOMO in The Journal of Brand Management in the year 2000. Harmen believes the concept of FOMO has become more widespread through social media.

Examples of FOMO

Dogecoin and Shiba Inu are two great examples of how FOMO affects the crypto markets.

DogeCoin FOMO

In 2021, Elon Musk made several tweets about Dogecoin that incentivised investors who haven’t already bought Doge to buy this token. This FOMO caused a surge in Dogecoin’s price. In fact, most of Dogecoin’s price volatility in 2021 was because of such FOMOs.

Shiba Inu FOMO

Late 2021 was a weird-in-a-good-way year for dog-themed tokens. After Shiba Inu’s initial pump, many news sources and crypto influencers started talking about the token. This FOMO caused more investors to buy this token, and the price of Shiba Inu kept surging.

Below is an infographic of some terms related to FOMO.

Infographic of related terms and abbreviations to FOMO.
Infographic of related terms and abbreviations to FOMO.

FOMO Vs JOMO

JOMO (Joy Of Missing Out) is the opposite of FOMO and refers to the times when you enjoy what you’re doing regardless of the trends and hype. JOMO is a response to FOMO and encourages you to keep doing what you do without worrying about “missing another shitcoin investment opportunity”. 

Psychology Behind The Fear Of Missing Out (FOMO)

FOMO is caused by the Amygdala, the part of the brain responsible for detecting if something is threatening survival. Amygdala recognises the feeling of being left out as a threat and, in response, generates stress and anxiety. People who are already highly sensitive to environmental threats or are under mental pressure are more likely to experience FOMO. This includes people who struggle with anxiety, depression, or even PTSD.

Symptoms Of FOMO

Although FOMO is a negative state of mind, you can identify it using a list of these symptoms to help the caught-up-in-the-FOMO person identify them and become self-conscious again.

  • Buying a crypto token upon hearing the news of its price pumping up;
  • Obsessing social media that are focused on crypto trends;
  • Trading or investing in a crypto token simply because the asset has gained popularity;
  • Constantly calculating how much would have been made if one had invested in crypto before it got all the attention and pump.

Causes Of FOMO

Crypto FOMO happens when someone makes impulsive investment decisions based on a piece of information not coming from a valid source, and usually, it doesn’t have factual backing. FOMO originates from the investor’s mentality, and here are some mentalities that can cause FOMO in crypto investments.

Catching The Next Crypto Pump

The crypto market knows how much early NFTs or Shiba Inu investors have made; thus, people constantly look for the next crypto gem to increase in value.

Avoiding Big Losses

Although crypto FOMO is referred to as a profit-oriented move, it is also done to avoid big losses and make more “confident” crypto decisions.

Discovering A New, Untested Market

The crypto market provides fresh and untested investment opportunities, which can spark the interest of the average TradFi investor.

Being Early To An Investment Opportunity

The success stories of early investors are well-known to the average crypto users. For example, how much Bitcoin, Ethereum, and other blockchains’ early investors have made.

FOMO And Social Media

Social media platforms play the main role in the spread of crypto FOMOs. These social media hypes caused volatility and FOMO around assets such as Dogecoin and Shiba Inu.

Also, social media FOMO promoted the 2021 bull run. News resources covered Bitcoin’s new ATH of $69K, resulting in many non-crypto users buying Bitcoin.

Scammers are well aware of the power of social media and try to create FOMO around their scam projects to manipulate investors into thinking the project is legit. That’s why you always need to DYOR to avoid making impulsive, FOMO-driven decisions.

Impact Of FOMO

When an investor loses money from a FOMO-based decision, it can impact them mentally if they aren’t prepared for such losses. This mental turmoil can affect other areas of their lives, such as relationships, family connections, friendships, and other aspects of their personal life. The person can experience troubles with their social life, which might lead to depression if not taken care of.

How To Minimise FOMO

You can follow certain strategies to avoid getting FOMO and possibly losing all your money in one impulsive decision.

  • DYOR: FOMO is driven by information from unvalidated resources. So, always DYOR before investing in a crypto project, no matter how loud the hype is. Remember that FOMO is a great tool for scammers.
  • Rely on Trusted News Sources: Relying on authentic and trustworthy news resources that you’ve distinguished from the other less-reliable sources can prevent you from getting caught up in FOMO.
  • Learn the Market Cycles: The crypto market moves in bullish and bearish cycles, and a lot of FOMO tends to appear after the market starts to recover from a long bear market.
  • Create an Investment Checklist: Developing an investment strategy checklist can prevent you from making impulsive financial decisions since it forces you to have a more calculated approach to investments.

Summary

FOMO, or Fear of Missing Out, means realising that one is missing out on an investment opportunity. It encourages investors to make uncalculated, impulsive decisions that usually lead to losing money instead of making any profit. FOMO can take a mental toll on investors who have lost their money and can affect other areas of their life.

FAQ

Now that we know all about FOMO and its causes, let’s answer some frequently asked questions.

How Do Traders Control Their Emotions?

Traders use investment strategies and emotional tactics to avoid getting caught in FOMOs, some of which are as follows.

  • Taking a break after a trade
  • Watching out for greed
  • Setting a stopping point
  • Keeping their mind on the investment strategy

Why Do I Get FOMO So Easily?

Regarding investment decisions, getting FOMO easily means you don’t have enough faith and confidence in your investment thesis. FOMO tends to awaken a sense of greed, which oftentimes won’t lead to making proper investment decisions. Learn how Fear and Greed affect your crypto investment.

Even though crypto investments tend to have higher profits in a shorter time span than other assets, going nice and slow with your investments is still recommended.

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