What is FUD?
Financial markets are shaped more by the psychology and decisions of market participants than by macro and microeconomic developments. Investors can make decisions based on rational grounds as well as irrational ones. The uncertainty of investor psychology has led to the necessity of explaining certain developments in the markets with the concepts. The most widely known and used of these concepts is FUD, which is a combination of the initials of the words fear, uncertainty and doubt.
Although this concept emphasizes the psychological atmosphere, it is also highly influential on trading operations in financial markets. By definition, FUD refers to the attempt to damage the reputation of a company, a product such as a commodity or a cryptocurrency, or a project with false and inaccurate news. The aim is to create fear among investors and to create uncertainty about the market to make anxious investors the wrong decisions. FUD can be part of a competitive strategy, or it also can be aimed at directly damaging markets and profiting from declines.
FUD in the Cryptocurrency World
FUD is also a very valid and frequently used concept in cryptocurrency markets. You can often see traders who have the power to influence the market and prices leaking and spreading negative and even inaccurate news in order to profit by lowering the price after entering a short position. These investors may also have taken positions in markets outside the cryptocurrency markets.
The conducted strategy to mislead market participants into fear by spreading the news that contain inaccurate information can emerge. The market then seeks a new equilibrium. However, negative news can be accurate in some cases. Therefore, especially when investing in cryptocurrency markets, the best choice is to try to evaluate the accuracy of the information you obtain with fundamental analysis from all aspects, and revise your investments during this period by considering every possibility if necessary.
How Does FUD Emerge?
Knowing that news sources are not the only medium used for causing fear and anxiety among investors is significantly important. While news resources are one of the most common ways to create fear among investors, especially in cryptocurrency markets, messaging apps such as WhatsApp and Telegram or social media platforms such as Twitter and Reddit are also frequently used to create FUD. If you, as an investor, share this news, it can lead to increased engagement and multiply the FUD effect exponentially.
Investors in cryptocurrency markets can be worried about certain types of news, especially about fraud or security vulnerabilities on cryptocurrency platforms. These rumors aim to make investors feel uneasy about trading and even withdraw their investments from the relevant platforms, thereby driving prices down.
Another content topic that creates a FUD effect is the news that a cryptocurrency product has been subjected to a “51 percent attack”. The 51 percent attack, in which a single person or organization monopolizes the hash rate and causes disruptions in the blockchain network, can cause investors to withdraw their assets from the product in fear. Other types of news about vulnerabilities, such as the 51 percent attack, can also lead to FUD in cryptocurrency markets.
News about government regulation of cryptocurrency markets also causes investors to worry. Notably China, many countries are regulating cryptocurrency markets. That’s why, this situation is hardly unrealistic. An investor should know that this type of news aim to create fear based on the decentralization of cryptocurrency markets.
FUD can also occur after large price drops. Major losses in cryptocurrencies, especially Bitcoin, can quickly affect other cryptocurrencies, which makes investors hesitate to trade, fearing a bear market. In such times, the best is to stick to your investment strategy.
Cryptocurrency markets can also be manipulated by statements made by influential figures in the world public opinion. Celebrity statements regarding a cryptocurrency can force investors to make an anxious decision, which can lead to sudden changes in the price of a relevant cryptocurrency or token.
What to Consider While Experiencing FUD?
Although FUD can be a difficult process to avoid, you can still manage to feel safe at such times. If you accept that cryptocurrency markets are shaped by the decisions of the participants, you can make the right moves at the right time according to your investment strategy and minimize the damage.
For this, you should avoid social media channels whose reliability is questionable as much as possible, do not listen to rumors, approach the news with caution and not make sudden decisions without fully confirming the accuracy of the claims.
Determining your investment strategy regardless of news and FUD-inducing developments will help you protect yourself from rumors that create fear and anxiety. You should also keep in mind that you can turn FUD into an opportunity if you invest with common sense and use risk management rules appropriate to your investment strategy.
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