Paradoxically, the term “FUD” contributes to fear, uncertainty, and doubt (FUD) in people who do not understand what this acronym stands for. FUD, however, is nothing to be afraid of. It is even possible to make money off of it, and many people do just that.
In everything, emotions are very important. It’s not a surprise, then, that markets, especially ones as flexible as crypto, are directly affected by how people feel. As soon as you understand how it affects people’s money choices, you learn to read between the lines and keep your mind clear of senseless fear.
This part will talk about what false information (FUD) is about crypto trading, how it affects people’s investment plans and the market, and how to avoid believing it. A lot of people lost money because of fear, but smart investors were able to read the market and make money while everyone else thought the ship was sinking.
Not to worry, let’s get started!
What is FUD?
FUD, as stated in the introduction, is an acronym that represents Fear, Uncertainty, and Doubt. These three negative sentiments have a significant impact on cryptocurrencies and the financial markets as a whole. They influence the behaviour of individuals, as well as the areas in which they invest and the quantities they purchase and sell. The industry as a whole is impacted when these sentiments prevail, and the figures on charts begin to turn crimson.
An excellent illustration of this would be present in the year 2021. At that moment, rumours began to circulate that the Chinese government was on the verge of enacting an outright prohibition on cryptocurrencies. Since China was extremely active in terms of cryptocurrency mining operations, there was widespread concern that such a sudden shock could cause the industry a catastrophic strike. This would have an impact on the prices of cryptocurrencies and result in financial losses for the majority of traders.
This news inevitably sparked a tide of FUD in the cryptocurrency community, as traders and investors sought to preserve their capital. The fears were warranted, as time eventually demonstrated that China did impose the crypto prohibition, and the market repercussions were felt by all.
This was an instance of FUD precipitated by disquieting rumours that proved to be accurate in the end. It is not, however, always the case. Typically, the situation is quite the contrary.
Occasionally, unfounded rumours circulate on social media; if no credible individual intervenes promptly to refute them, the consequences of FUD waves can be severe. In situations such as this, the harm is caused by the emotional impact of unverified information on traders, who all succumbed to fear, uncertainty, and doubt.
How Does FUD Work
Consider the following example. In May 2021, several months before the rumours regarding China’s ban, it became common knowledge that the United States Treasury intended to rigorously intensify crypto regulation.
The rapid dissemination of FUD precipitated a substantial decline in the value of cryptocurrencies including Ethereum and Bitcoin. As soon as prices started to decline, individuals began to despair. Numerous traders hastily divested their crypto assets as a means of safeguarding their investments; this, in turn, exacerbated the negative sentiment and precipitated a further decline in cryptocurrency prices. Despite being precipitated by an unfounded allegation, this generated a self-perpetuating cycle of misfortune and a snowball impact.
Thus, this demonstrates how FUD can be caused by false news and phoney information. Regarding FUD, an astute investor must maintain constant vigilance and sharpness to avoid falling victim to spurious rumours.
There are numerous parallels between the operation of rumours in the cryptocurrency market and the real world. Occasionally they are proven to be accurate, and occasionally they are refuted as complete fallacies. However, one more factor must be taken into account when discussing the meaning of FUD in cryptocurrency investing. FUD, like gossip, is frequently generated by individuals with specific intentions. And these objectives can become quite malevolent.
Favoured by market manipulators, rivals of a specific cryptocurrency, or crypto-related businesses is FUD. A company or a coin that is engulfed in clouds of FUD that are artificially generated may suffer harm if the rumour is not debunked speedily.
As previously stated, FUD induces frenzied selling among traders who are attempting to preserve their investments. Thus, if the FUD is directed at a specific coin, its price may decline substantially. Insufficient dispersion of the FUD may result in a decline in investor confidence towards the coin, the company, and potentially the entire industry, as individuals may experience tangible apprehension, uncertainty, and scepticism regarding the continued commitment of capital.
Nonetheless, where victors also exist, there are losers as well. This is something that market manipulators are well aware of; whenever they observe an increase in the prevalence of aberrant market behaviour, they immediately begin to detect new opportunities.
If the allegation is unfounded, it will inevitably be refuted, thereby terminating the FUD cycle. However, until then, the function is carried out by the artificially created FUD.
The abandonment of a specific coin by the public would result in a decline in its value. This phenomenon provides market manipulators with the opportunity to purchase this coin at a discount, resell it at a higher price than they initially paid, and then profit from its recovery.
The following is a more notable instance in which an individual was charged with market manipulation. Elon Musk announced via Twitter in May 2021 that Bitcoin would no longer be accepted as payment for Tesla products. This naturally induced widespread investor concern, which precipitated a 10% decline in the price of Bitcoin in less than a day.
He was accused of market manipulation as a result. His knowledge extended to the fact that such a statement would cause Bitcoin’s price to plummet. Undoubtedly, some traders viewed this tweet as an opportunity to purchase Bitcoin at a discount, as they anticipated that a significant number of individuals would abandon their cryptocurrency holdings in a panic.
How to See Through FUD (Taking Advantage of “FUD”)?
Right up until now, I’ve talked about how FUD can be caused by:
- Truthful information that turns out to be true in the end;
- Untrue sensational rumours;
- People purposely spread rumours to make everyone panic and mess up the market so that people who are manipulating it can make money off of everyone’s losses.
This market is influenced by feelings, especially bad ones. One major reason for this is that the crypto industry uses social media a lot.
Since new coins, technologies, updates, and opinions are released every day, people need to keep up with the latest news in the industry so they don’t miss out on new investment possibilities.
Although, it does have two sides. People who profit from spreading false information use people’s over-reliance on social media as a tool. Saying bad things and spreading lies quickly is possible with social media. Therefore, to stay safe and sane in the crypto world, it is very important to always be critical and not mindlessly follow the latest hype, fear, or other emotion-based trend.
Naturally, the number will go down when FUD is all over the place, and the score will turn red. This measure can help someone who is getting too worried by showing them how bad the situation is. The objective of the index is straightforward: to assist individuals in managing their feelings and avoiding excessive reactions.
Regardless, it would be too simple if a simple measure could help people avoid losses or directly lead to gains. Massive changes can happen very quickly, so depending only on indexes like this one could be very bad for your money.
Expert sellers would suggest something else to people who are worried about being too affected by FUD. It’s known as “diversifying your portfolio.” Your ability to handle the FUD clouds better is improved by a simple investment plan.
Investors should hope that the coin they put all their money into wasn’t affected by a change in market mood that was negative. “Don’t put all your eggs in one basket” is a popular saying that has a crypto form. Other coins might be able to avoid FUD if it affects one coin. With a diverse portfolio, one rumour won’t be able to ruin someone’s whole financial situation.
Lastly, anyone getting into crypto needs to know that many projects will be around for a long time, especially the real, hopeful ones. After doing their research, traders have to decide if real projects will be able to survive speculation based on false or easily debunked stories.
FUD makes new investment chances in situations like this. You might want to “buy the dip” when bad news about a crypto coin causes its price to drop. Translated, this phrase means to buy the coin when it’s cheaper and possibly make money when the object goes up in value again.
Plus, a lot of FUD events are only temporary. The market and the social media booms in crypto are both very unstable. Every minute, there are new arguments, claims, ideas, and conflicts. There are stories every day, but most of them are quickly forgotten.
Therefore, traders who are calm and patient know when someone is trying to spread false information and don’t let it worry them.
Wrapping It Up With “FUD”
I’ve discussed FUD in investing, its manifestations, and its potential effects on the cryptocurrency market in this part. To be successful in trading, it goes without saying that a trader must be able to identify false information and be able to ignore it.
A new perspective and skill of being warier & less prone to emotions and impulsive behaviour are given to traders upon realizing what produces false positive news (FUD) and that it might be a deliberately generated turmoil that market manipulators could exploit. Without a doubt, a trader ought to aim to acquire it.
From this point forward, hopefully, you will be able to identify FUD and you won’t be afraid to inquire, “What is FUD?”