Market Volatility: Decoding the FOMO Effect

Bitcoin has broken the $60,000 barrier – as of writing this note, the leading cryptocurrency is trading at $61,484. I’m noticing an intriguing trend among those around me: everyone’s eager to jump into investing as quickly as possible. What’s ironic is that, during the first half of January, there was significant downward pressure on the price, largely due to massive sell-offs from Grayscale Investments. This resulted in Bitcoin’s value dropping from $48,000 to the range of $38,000-$39,000. Back then, with the landscape ripe for buying, especially with an impending halving scheduled for April, hardly anyone in my circle was considering investing. This pattern of behavior isn’t new; it happened in late 2017 and again in May 2021.

Bitcoin is currently trading at very high prices, triggering an unprecedented level of euphoria among people who believe they will reap investment returns at lightning speed. Conversely, when Bitcoin experiences a dip in price, many lose faith. This phenomenon is commonly referred to as FOMO (Fear of Missing Out) and is characterized by an emotional impulse that overrides rational risk assessment and financial logic. While we’ve previously discussed strategies for novice users and entrepreneurs to navigate market volatility, we’ve yet to explore how fear and risk aversion can significantly impact investor mindset. After all, financial markets are driven by human nature, with some individuals diligently analyzing crypto financial trends while others participate in bullish rallies, believing that prices will continue to rise indefinitely.

Frequently, investors give in to crowd behavior​​​​​​​. When they see others buying Bitcoin at exorbitant prices, they’re reluctant to be left behind and feel compelled to act swiftly. Fear, greed, and optimism play pivotal roles in shaping investment decisions. I don’t claim that anyone can eliminate these emotions entirely when investing (at least not 100%) but it’s crucial to strive for a rational mindset and recognize that impulsive actions can lead to substantial losses. Sometimes, it’s wiser to be cautious and avoid hasty responses to news or sudden market changes. I didn’t have all the answers when I first ventured into this realm several years ago, but I did grasp the importance of adopting a long-term perspective.

I understand what many people are thinking: ‘It all sounds great in theory,’ ‘I wish it were that simple’… I agree that the subject is complex and has many nuances. However, it’s crucial to stay calm during times of volatility, and this isn’t something we’ll achieve by magic or overnight. We need to learn as much as possible about the crypto market and educate ourselves on the technological and economic fundamentals… Only then can we alleviate the anxiety associated with investing. The worst thing you can do as a beginner is to invest based on friends’ advice or what you’ve read on social media. Learn at your own pace and take the time you need, but chart your course based on your efforts. Once you’ve built a solid foundation, then you can consider others’ opinions.

“Cryptocurrencies are risky. I know it’s easy to feel excited, but please understand that markets are very volatile. Don’t buy just because the numbers are green or sell just because the numbers are red”.

-Charlie Lee, Litecoin creator.

Prioritizing education, careful planning, and emotional control allows us to elevate our decision-making to a rational and well-informed level, thereby enhancing our long-term prospects for success. Once you have the necessary knowledge to embark on this journey, it becomes crucial to outline a precise investment strategy: determining your cryptocurrency investment amount and how you’ll diversify your portfolio. Additionally, it’s essential to stay abreast of developments in the crypto sphere. While some may perceive this as potentially stressful, avoiding such engagement won’t contribute to our learning. Staying updated on news, blockchain technology advancements, and macroeconomic shifts affecting the market is crucial.

What I’m about to say may sound repetitive, but it’s worth noting. I’ve encountered individuals who, surprisingly, have made the same mistake repeatedly in their investments. When delving into cryptocurrency investments, it’s not just about analyzing metrics like trading volume, market capitalization and liquidity. Equally important is deeply contemplating the outcomes of each investment experience: recognizing what worked well and what didn’t, learning from mistakes, and adapting your strategy accordingly. Always remember: it’s essential to invest only what you can afford to lose.

From the mentioned advice, what do I consider the most valuable? Given that learning and acquiring knowledge are paramount, I would emphasize staying informed about developments in the crypto world. When I began, I felt quite overwhelmed, believing this market was beyond my grasp. Nonetheless, I started reading news daily – naturally discerning between the more general and accessible and the more technical and specific. Within a few weeks, I began noticing remarkable progress. I didn’t begin by enrolling in courses from self-proclaimed trading experts; instead, I simply immersed myself in daily reading.

This is how the redesign of Purse.io came to be: as an opportunity to help you cultivate knowledge in the Blockchain field. We like to think of ourselves as a group of wizards who, week after week, not only invite you to stay updated on what’s happening with Hamza.biz, the first Web3 e-commerce powered by the Loadpipe protocol – a project of our own creation – but also bring you compelling subjects. If you’d like to give suggestions or have us touch on a topic of your preference, remember that you can contact us through this form.