The psychology of FUD

The incentive behind this article

I have been into crypto since november 2017. At the time of writing this article, i have been invested into crypto for a total of 2 months. These 2 months were amongst the most exciting months since the release of bitcoin and the cryptomarket in its entirety i believe. Alot of stuff has happened.

First of all the entire marketcap reached a mind-boggling peak of around 822b total market cap. It was and is still undergoing mass adoption amongst the global community.

Second of all we have seen an incredible rise of bitcoin to up to 20k because of alot of new money entering the market.

And lastly we have experienced alot of crashes along with the FUD that was responsible for a bunch of those crashes.

I have seen coins being overhyped and overbought only to crash afterwards because of FUD. It seems that alot of people forgot or are just not aware of what investing is all about and therefore have lost alot of money.

What is FUD?

FUD stands for 'fear, uncertainty and doubt'. It is what you constantly keep reading when someone makes a negative comment about a crypto. It is what drives the very bear market we all dislike and fear.

Mass adoption

Mass adoption is both a positive and a negative thing for the cryptomarket. First of all it brings alot of new money into the market which makes alot of cryptos rise in value. Mass adoption also makes it possible for new currencies and other platforms to launch as there will be potentially more people to form a community and support them. This is why we've seen an exponential growth in cryptoprojects in 2017. When 1 project had finished, 10 more were ready to launch. Almost every new coin attracted some form of investment from market participants whether big or small. This, while it helped the market become what it is today, also has a negative side.

Mass adoption also means alot of chaos. Especially in this new and confusing market. People were attracted by promises of lambos and millions of dollars. They did this without really knowing what they would get themselves into. This resulted in a few key figures emerging from the community which would supposedly bring clarification throughout this volatile market. The new 'Investors' trusted them and put their faith in those key figures.

What this led to

There are countless examples of how these key figures positively influenced the portfolios of numerous new 'investors'. There are, however, also numerous examples of how these figures influenced portfolios negatively.

Just to name a few examples of negative influencing:

Trevon James and the bitconnect ponzi - People lost millions of dollars.

John McAffee and the Verge shill - People had faith in verge because of this and lost alot of capital when it crashed.

Apart from portfolios being negatively influenced, these events created more FUD and chaos and scared off alot of investors. Events such as these lead to an overall loss of trust in the market.

This negatively influences the communities of other coins aswell. Alot of people will tend to sell their holdings if there is even a hint of negativity around the coin itself. Because 'investors' invest in coins without doing proper research or thinking rationally about the technology and idea behind certain coins, FUD gets the best of them. This has opened the opportunity for 'The common man' to manipulate the market in his favor. This is especially easy in times of great chaos within a community.

I have seen alot of coins trying to implement great things that will benefit the platform and could potentially benefit the world in the longer run. These events were used as major FUD points instead of bringing positivity.

An example:
On the 24th of january 2018 icon (ICX) would receive a major update. The mainnet would be released which would give ICX it's own blockchain which could serve as a platform for alot of new projects and innovation. The community was really excited and this generated alot of demand for ICX during the weeks prior to the 24th. The official team also later stated on twitter that the release would be at the end of january. This was because of south korean government regulations. However 2 days prior to said release date, posts started popping up on the official reddit page. These posts claimed that the mainnet would be released on 9pm EST on the 24th.

The posts included screenshots from an unnoficial telegramp group. People thought the release time was set in stone and started hyping the coin up even more. ICX saw some growth untill said release date. The 24th however was a blood bath for ICX. The coin saw a 15-20% drop during the european afternoon. The official reddit was flooded with messages stating that the icon foundation was really late and that people would sell the coin if they didn't release anything before 9pm EST. 9pm EST passed and the so called mainnet was still not launched! This led to people jumping to conclusions about the coin. Some called it a scam and a ponzi.

Was this a reason for panic?

The answer is: Yes and No.

Research shows that most of the FUD posts were created by reddit accounts that were a day old and the telegram message was from an unnoficial telegram group. This should be a reason to panic for daytraders, who were looking to make a quick buck off of ICX and were looking to get out. Because the nominal value of the coin went down by quite alot. However, if the investor's plan was to go for the longer run, this was all but a reason for panic. After doing some research, i found out that ICX has a good project, a good team (with verified linkedin accounts), a great whitepaper and a part of believers in the community that present intelligent arguements. I've also found out that alot of the FUD had no real evidence proving it.

This research took me more than 2 hours of reading through the whitepaper, checking the team and reading through the reddit page. This got me into investing into ICX for the longer run.

But this article hasn't been written to promote ICX.

What i'm trying to say here is that even though the ICX community was in chaos, the common investor could've done some research and found out that even though a big FUD wave was hitting the community, they had no reason to panic and make the effect worse.

Why would people spread unneccesary fake FUD?

This is a very interesting question. But it's very easy to answer. Whilst those people are doing it in kind of an unenthical way, they understand the essence of investing. Investing is all about beating the market. As an investor you are essentially a player within the market game. The market and the other investors are your opponents. How do you beat your opponents? One common way to beat your opponents at any game is by influencing their state of mind. The market is just a game. If you believe that an asset will rise and want to buy more, but don't want to pay such a high price, trying to influence the community behind that asset into selling their asset might be the way to go! Especially in this volatile and uncertain market where any piece of misinformation might cause a chain reaction which makes the market move heavily in 1 way. But how can you protect yourself from this?

What can you do to not fall for unnecessary FUD?

Whenever you get invested into any digital asset, make sure to be updated from the right sources at all times about that asset. Do extensive research on said asset and it's community. This is the internet. Anyone can lie and spread fake news and messages! Do not be satisfied after reading 1 positive or negative message. Read a bunch of both and try to weigh them against eachother. Looks whether there is alot of social feed and an active community. Read whitepapers extensively. Try to read it and summarize it. After you have done all that, you can step into a project and invest your hard earned money into it. If you do this correctly, no amount of small FUD can make you drop any valuable asset into the hands of your enemy.

Also, any key figures making negative statements about said asset, is not the end of that asset if you are planning to invest. Always do your owns research. Key figures can provide some information but you are in control of your own actions and funds. Do not let them be in control because they might also try to beat you at the market game!

On the other hand you shouldn't be blindly optimistic. If any big instance such as a government does release any official news which could negatively impact your asset, you should consider putting a stop-loss. This means your losses will be a bit bigger if you are putting the stop-loss lower than the current price, but the potential reward might be greater!

Thank you for reading!