FUD is simply an abbreviation for fear, uncertainty, and doubt.The impact of FUD on the cryptocurrency market can be pretty huge, especially when compared to other traditional markets.
What Causes FUD?
Many different factors can cause FUD in the cryptocurrency market. However, FUD meaning crypto the most, is:
- government regulation or rumors about government regulation;
- prominent members of society who condemn or speak negatively about cryptocurrencies;
- a sharp decline in cryptocurrency prices.
Government Regulation or Rumors about It
Cryptocurrency markets are still in their infancy. As a result, many countries are trying to figure out how to regulate them.
Some countries, such as Japan, support them and have even granted them full currency status. Others, such as the US, regard them as assets, not currencies, and levy appropriate taxes. Several countries, including Ecuador, have even banned cryptocurrencies entirely.
A country banning digital currencies is terrible for the cryptocurrency market as a whole. It’s because bans limit the number of people buying cryptocurrency and reduce the size of the market.
Thus, FUD often occurs whenever there is news that a country intends to ban cryptocurrencies or tightly regulate them.
Famous People Who Condemn or Speak out Negatively about Cryptocurrencies
When famous or influential people speak out against cryptocurrencies, this can also create FUD. It’s especially noticeable if such an opinion belongs to a person who is an expert in the field of high technology or finance.
Even though many famous people changed their position over time, this still did not prevent them from creating a lot of FUD around cryptocurrencies and lowering their prices.
A Sharp and Sudden Drop in Cryptocurrency Prices
While sharp and sudden declines in cryptocurrency prices are often a consequence of FUD, they can also cause. The cryptocurrency market has proven to be highly vulnerable to sudden drops. The converse is also true, and sometimes the cryptocurrency market explodes.
When prices fluctuate, it can create a lot of shocks. It makes new investors, who are not used to high volatility, panic and sell their assets, which leads to a drop in prices even lower. Sometimes, it can take weeks or even months for cryptocurrency markets to recover from adverse price fluctuations.
Sharp and sudden declines in cryptocurrency prices tend to be temporary, and markets tend to recover, often making new highs each time.
However, many people make the mistake of selling all of their assets when panic selling occurs.
Cryptocurrencies are especially vulnerable to panic sell-offs and FUDs because they are brand new assets that are poorly regulated.
Why FUD Can Affect Prices So Much
The reason FUD can have such a significant impact on the cryptocurrency market is that it sends a signal that:
- or something is wrong with the market;
- or a massive number of people will leave the market soon.
An example is China’s ban on ICOs, mining restrictions, and the subsequent ban on cryptocurrency trading. All this served as a prerequisite because millions of Chinese citizens are likely to sell their cryptocurrencies due to the new rules.
Jamie Dimon’s comments indicated that something was wrong with the market. Jamie Dimon has a very high level of influence in the financial world, considering that he is the CEO of JPMorgan Chase – one of the world’s largest and most powerful banks. When he called Bitcoin a scam, many people believed him and started selling their digital assets.
The sharp decline in prices creates the impression that something is wrong either with the entire market or its elements. A vast number of people may soon leave the industry.
It’s because the sharp decline in cryptocurrency prices resembles a stock market crash. A quick collapse in prices is overwhelming for many people. When it happens, it can seem like the market is about to collapse completely.
Many people cannot handle the high volatility and sell their digital assets to avoid FUD. While many long-term cryptocurrency investors consider this movie to be typical for newbies, it still happens and appears to be happening regularly.
Opportunities Created by FUD
FUD often leads to significant price drops, causing many people to lose money temporarily, but FUD also creates opportunities.
The emergence of FUD may be the perfect point to enter the market and buy crypto assets, but only for smart and patient people. Patient enough to wait for the FUD.
After a price drop caused by FUD, buying a cryptocurrency is like purchasing a stock after a significant market crash. Many stock investors view a stock market crash as a kind of “sell-off,” a limited-time opportunity to buy stocks at a discounted price.
On the other hand, it can be challenging to calculate the FUD cycle time accurately. It’s because it’s not always clear where the bottom of the cryptocurrency price drop due to FUD is.
Will FUD Ever Stop in the Cryptocurrency Market?
There is a very high probability that the FUD in the cryptocurrency market will decline significantly over the next ten years.
By then, most countries will have approved their positions and rules regarding cryptocurrencies. So the risk of significant negative news or the emergence of information about a new government that suddenly decided to ban cryptocurrencies will decrease.
In addition, cryptocurrencies should have enough time to establish themselves as either an asset class or a failed bubble by then.
Cryptocurrencies have been around for over a decade. The cryptocurrency market capitalization has generally grown during this time, despite several notable drops.
Suppose the total cryptocurrency market capitalization continues to grow over the next five to ten years. In that case, many fears that this is a modern tulip mania or “the biggest bubble of all time” will subside.
It seems more likely that cryptocurrencies will become an asset class, at least competing with precious metals.
All markets go through FUD. Unfortunately, the cryptocurrency market is currently experiencing a much higher FUD rate than most other markets.