Cryptoassets may not be regulated financial products so please be aware that trading them carries a considerable amount of risk for your capital. Cryptocurrencies are also not covered by existing consumer protection laws and are not suitable for the majority of investors. It can be easy to get swept up in what feels like excitement when you’re looking at crypto investments. After all, the cryptoasset market has grown rapidly and the internet is filled with stories about cryptoassets that have made significant gains. This could lead to the fear of missing out (FOMO) affecting investors and the wider market. FOMO describes the unease you might experience when you feel like you’re missing out on experiences or opportunities.
In terms of investing, it might manifest if you believe you’ve missed a chance to invest in an asset that will deliver high returns. Comparing yourself to others could influence the decisions you make, particularly in a fast-moving market like crypto, because you may not pause to consider the alternatives.
3 reasons why crypto investors might be more vulnerable to FOMO
Any investor might experience FOMO at one time or another, but some features of the crypto market could make those who invest in these assets more vulnerable.
1. High levels of media coverage
The relative newness and high valuation of some cryptoassets mean they often feature in the media. This coverage often highlights dramatic movements or success stories that could stir up feelings of FOMO.
2. Social media trends
Compared to other assets, you might find social media influencers talking about cryptoassets more frequently or more animatedly. These viral trends could lead to some investors comparing themselves to online personalities and creating a sense of FOMO.
3. 24/7 trading opportunities
Unlike traditional investment markets, you can trade cryptoassets around the clock. This is one reason why the market moves quickly, creating a sense of urgency among investors. So, when they experience FOMO, they feel like they have to react to it straightaway.
The impact of FOMO on the crypto market
For individual investors, FOMO might mean they worry about being left behind. As a result, they might invest in an asset that doesn’t align with their strategy or skip carrying out research because they believe they need to act quickly.
FOMO might continue to affect you even when you’ve purchased the asset that first caught your attention. There might be a temptation to try to time the market or, if the value of the asset falls, to seek another opportunity that would help you recoup the losses. Similarly, if your FOMO investment performs well, it could prompt you to make further reckless decisions.
On a personal level, acting based on FOMO might leave an investor with an unbalanced portfolio or one that carries more risk than is appropriate for them.
When there’s a trend of acting based on FOMO, it may affect the wider market too. For example, if there’s a surge of interest in a particular cryptoasset, its value could soar. This might
lead to inflated prices, which will then sharply fall as the market corrects. In turn, this volatility could heighten FOMO even further. If you find that FOMO might be influencing some of your decisions, take a step back to assess what’s driving your decision. An investment opportunity that’s right for someone else could be inappropriate for you once you consider your investment strategy and financial circumstances.
While it can be difficult, focusing on your overall financial plan and sticking to your investment strategy could help you avoid FOMO-led financial decisions that might harm your ability to reach goals.
A financial plan could help you assess investment opportunities
Whether you’re interested in investing in crypto or another asset, a tailored financial plan could be valuable. Working with a financial planner often involves discussing your goals and financial circumstances, which could help you assess what level of investment risk is appropriate for you and potentially reduce the effect of FOMO.
Please contact us if you’d like to talk about your investments.
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future. Cryptoassets may not be regulated financial products so please be aware that trading them carries a considerable amount of risk for your capital. Cryptocurrencies are also not covered by existing consumer protection laws and are not suitable for the majority of investors.
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Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only. All information is correct at the time of writing and is subject to change in the future. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
