The cryptocurrency market is a fairly new concept. The market is the result of a major technological innovation of this century in the financial sector. However, the concept of fear, uncertainty and doubt is old and precedes cryptocurrency by time immemorial. Shortened as FUD, fear, uncertainty and doubt are especially rampant in the crypto market today.
Not uncommon for an inchoate market, the FUD in the digital coins market today is high. There are many factors that cause this phenomenon. As a result, it exerts great influence on the market price of cryptocurrencies. Apart from the price, FUD is crucial in determining the direction of a market. The phenomenon determines whether a market sentiment is bullish or bearish.
What is FUD?
A typical market consists of players who are essentially human. Although there is evidence of nonhuman players, even these depend on human ingenuity to work. Intelligent machines are intelligent because intelligent humans make them. Speaking of human, there are many human aspects that one need to take into consideration to understand a market. Specifically, humans are unique in all aspects; psychologically, intellectually and more.
Although humans depict unique psychological capacities, there are common psychological threads that run through each and every human. Each market participant has a certain level of psychological abilities and therefore reacts differently to different situations. As a result, one market participant might react to the FUD in a different manner compared to another.
Usage in a general market sense
Normally, the psychological elements are used all at the same time. For instance, one could say: “ Warren Buffet spread FUD by saying Bitcoin is rat poison squared.”
Clearly, the combination of fear, uncertainty and doubt are good for malicious activities. Consider this; company A and company B are competitors in the business of selling meat at a local city estate. The companies deliver high-end products which customers enjoy eating. However, there is a problem. Company A feels unable to compete with Company B. The management at Company A believes Company B has a competitive advantage which they cannot match. To prevent loss of their market share to their rivals, Company A embarks on a campaign that aims to tarnish Company B’s reputation. As a result, they hope that customers will shift from their rivals and begin buying their products.
To that end, Company A designs adverts that cast Company B’s products in bad light. One line in the malicious advert reads, “Why eat dirty while you can get clean with us?” The campaign spreads FUD regarding the meat products from Company A’s production line. In the end, Company A gets a high demand for its products at Company B’s expense.
Usage in the cryptocurrency market sense
The cryptocurrency market is no different from the forex exchange market. Basically, both markets involve buying and selling of currency. While traders buy and sell fiat currency in forex market, investors in the cryptocurrency market buy and sell digital coins. For instance, one might want to buy Bitcoin in an exchange while using US Dollars. To that end and through a cryptocurrency exchange platform like Binance, one uses the dollars in hand to get the Bitcoin.
It is important to note that interest rates and market sentiments greatly affect cryptocurrency much like the forex market. Any attempt at spooking the investors’ psychological elements can turn the market on its head in a matter of seconds. Consequently, the market is very volatile.
A good example of FUD usage in the cryptocurrency market relates to the Warren Buffet sentiments. Warren Buffett is a renowned investor whose advice investors the world over heed. He is a valued investor who believes in buying and holding. In fact, he say “if you can’t hold it, don’t buy it.” Therefore, when a man of Buffett’s stature makes a negative comment about an asset, it will be a classic case of spreading FUD.
Regulators and FUD
Governments and government agencies can spread FUD whether intentionally or unintentionally or sometimes with a particular end in mind. There are instances spread across the world of countries banning cryptocurrency. Although volatility and market manipulation are mostly the culprits, it is possible that some governments have malicious intent.
Late last year China announced a total ban of all cryptocurrency activities within its jurisdiction. All initial coin offerings (ICO) scheduled for launch in the country came to an abrupt halt. At that time, Bitcoin grossed at around $4,500. In the immediate aftermath of the ICO ban, Bitcoin fell to $3,600. This is a classic example of what a government can accomplish with FUD utilizing a regulatory agecy.
Market forces can also spread FUD to a very dangerous degree. If a coin displays sharp price fluctuations, investors might fear it. The phenomenon develops from the investors feeling that the coin might fall to prices that may wipe out their investments.
Common in all the instances described above, point in one direction; prices! The price of a cryptocurrency is the value of a coin like Bitcoin in terms of fiat. For instance, if one Bitcoin equals $6,447, it implies that the price of 1 bitcoin is $6,447.
FUD affects prices in the sense that investors believe they signal the impeding direction of the market. According to World Cryptocurrency Index, an online cryptocurrency news publication, “The reason why FUD can have such a big impact on the cryptocurrency market is because it sends a signal that either something might be wrong with the market or that vast numbers of people may soon be getting out.”
According to the publication, FUD is more dangerous in the current crypto market. This is because the market is still young and there are still jurisdictions that do not recognize their legality. Furthermore, the regulatory environment is remain unstable. Moreover, there is lack of comprehensive regulations regarding cryptocurrencies.
In closing, market analysts agree that the effect of FUD will substantially subside in the longer term. As the market grows and more comprehensive regulations are established, people will begin to trust the market and the effect of FUD on cryptocurrency prices will decline.
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