The Psychology of the Cryptocurrency FOMO-FUD Cycle Has Been Weaponized

It comes with little surprise that promoters of new altcoins and ICO tokens use every tool at their disposal to gain an advantage in the ever-crowded cryptocurrency market. While the positive marketing approaches are well known and widely talked about, like sponsorship deals with rappers, sport stars and other celebrities, the negative side of the business is no less important. This includes employing smear campaigns to hurt competitors and adversely affect the psychology of investors.

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Trading Psychology

Terms like fake news, FUD and FOMO are too freely and frequently thrown around in cryptocurrency forums, but some people have indeed successfully weaponized these tactics. Writing in Psychology Today, Bobby Azarian, Ph.D., a cognitive neuroscientist, explains how the natural cycle of fear and greed has been hijacked to promote certain interests.

Azarian writes: “During this cycle, spreaders of FOMO and FUD are engaged in psychological and information warfare as they compete for the attention of the curious investor, who is intrinsically vulnerable owing to being always on the lookout for insightful opinions that could inform better investment decisions. It’s a bit ironic that in the crypto-world, taking the time to hear the opinions of others can actually hurt more than it helps.”

No Holds Barred High Stakes Game

With a total market capitalization of over half a trillion dollars, and a daily trading volume higher than some national stock exchanges, cryptocurrency promoters are now playing in the big leagues. Additionally, as the market is unregulated and ethical standards have yet to be established, tactics that would get you banned or in jail in other markets are seen as fair game. Considering this, its up to investors to remember that it isn’t just normal haters, contrarians and trolls who might be spreading rumors but also business people with lots of money to spend on PR and big commercial interests at stake.

Besides competing for the same investors and resources, cryptocurrency promoters may have more reasons to hurt a rival. One simple to understand motive is wanting to make sure no other token passes yours by total value, capturing its place on Coinmarketcap. A more complex situation to follow is the interwoven community politics, wherein someone might attack a project not because it is a direct competitor but because a supporter of it is a rival in another field.

“While the FOMO-FUD cycle might be entertaining to watch, it is important to remember that this isn’t a game, even though it’s being played like one. These fear campaigns have real financial consequences for investors,” Azarian explains to the Psychology Today readers.

Triggering Our Fear Systems

Azarian zeroed-in on one recent example, the reporting on the IOTA Microsoft partnership, to make his case. He details in great length how the cycle unfolded across the internet, Reuters, and CNBC. He calls out in particular one anti-IOTA story by a “mainstream media fact checker” (conspiracy) website for being an “unabashed, grade-A, FUD fodder. The fact that the article appears to be well-investigated on the surface gave FUD spreaders the ultimate weapon to add to their arsenal.”

The psychology expert concludes that cryptocurrency traders must be skeptical not only of sensationalized statements, but also of skeptical statements themselves. “We must be aware of how easily we are manipulated when our fear systems are triggered, and adjust our investing behavior accordingly.”

Has any negative psychology tricks affected your trading? Let us know in the comments section below.

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