Gate.io Blog Causes and effects of FUDs

Causes and effects of FUDs

09 August 14:26

FUD is an abbreviation for fear, uncertainty and doubt.

Fear, uncertainty and doubt exist when there are negative events and news which affect people’s investment decisions.

When prominent people say negative things about cryptocurrencies FUD develops in the market.

When there is FUD investors should stick to their investment plans and have long-term hodling mentalities.

Keywords: FUD, Fear, uncertainty, doubt, investment, news, cryptocurrency, investment

Several factors influence the environment climate in an economy or even on a global scale. Currently, internet based investments are affected by events which take place anywhere in the world, depending on their magnitude. For example, wars or changing interest rates impact the value of investment instruments and assets. In most cases, the events and or changes in macro-economic variables affect human perceptions and sentiments which ultimately determine the level of investment in an asset such as bitcoin. FUD is an acronym based on the key emotions investors experience from time to time.

What is FUD?

FUD stands for fear, uncertainty and doubt which investors have at certain times. Basically, FUD describes the negative sentiments which investors experience when there is bad news or events which affect the price of their investment assets. Both accurate and false information can result in FUDs. For example, the news that the Federal fund rate has increased, causes fear, uncertainty and doubt in investors. This is because the changes in interest rates affect the value of the investment assets.

In the traditional product market, FUD refers to malicious marketing strategies involving spreading of negative information about a product of a certain company. Usually, competitors are responsible for disseminating such bad information with the intention of persuading the consumers to stop purchasing products which other companies offer and buy their goods and services instead. For instance, the information may create negative perceptions about the product’s technical merits, quality and utility.

Source: Metacrunch

Historically, the term fear, uncertainty and doubt started in the 1920s. However, the term FUD was coined in the 1970s and has been greatly used since 1975. Because many individuals invest large sums of funds, it is normal to feel fear, uncertainty and doubt if things are not going as expected. However, these negative emotions such as fear can make an investor make irrational investment decisions like selling shares or a specific cryptocurrency before the planned date or level of return. In worst scenarios, the investors may even dispose of the assets at a loss.

Causes of FUDs

Falling prices of cryptocurrencies can result in fear, uncertainty and doubt. Certainly, the level of FUD increases if the prices of cryptocurrencies continue to fall. By their nature, cryptocurrencies are prone to rapid price decreases. As such, they are highly volatile investment assets. For example, the price of a token can decrease by 10% within a single day. What further complicates the situation is the unpredictability of the prices of cryptocurrencies. At times, the price of a cryptocurrency can remain in the red for a month or more.

The media can be a source of FUD. This is because news outlets such as newspapers, radios, the internet and televisions can spread incorrect information about a cryptocurrency resulting in uncertainty, fear and doubt in the market. For example, some news agencies claim that bitcoin and other cryptocurrencies are used in illegal activities such as terrorism. Others say that cryptocurrency and other digital assets such as non-fungible tokens are fads.

Source: Somagnews

Regulations governments enact can create FUD. Although many governments have not yet created regulations governing crypto activities, the promise to create such laws can result in FUDs. Apart from that, government policies such as the introduction of taxes on cryptocurrencies can cause fear, uncertainty and doubt in the market. For example, in early June 2022, the United States government increased the fund rate resulting in panic in crypto and stock markets.

The carbon print of certain cryptocurrencies such as ether and bitcoin also create FUD in the market. The campaign against bitcoin due to its heavy consumption of energy caused panic in the past. The reason is that some governments and environmentalists have campaigned vigorously against bitcoin because of its high usage of electricity, some of which is generated from non-renewable resources like coal. In addition, generating fuel using coal produces greenhouse gases which damage the ozone layer, thus leading to climate change.

Some prominent people, including presidents and corporate leaders, have campaigned against using cryptocurrencies. Some of them compare cryptocurrencies with ponzi or pyramid schemes meant to defraud others. In the past, Ben Bernanke, former Chairman of the US Federal Reserve, Brian Moynihan, CEO of Bank of America and Warren Buffet, CEO of Berkshire Hathaway Inc, spoke against cryptocurrencies, especially bitcoin. As well, some celebrities have raised some concerns against cryptocurrencies. For example, Elon Musk, at one time, campaigned against bitcoin due to its high energy consumption.

Examples of FUDs

We have notable examples of FUDS. China banned several crypto activities in the last few years. For example, it banned bitcoin mining in 2021, resulting in many miners relocating to other countries. However, in that instance, there were no major repercussions on the price of bitcoin.

Source: Investmentu

The issue of quantum computers has also caused fear and anxiety among cryptocurrency users and related institutions. People anticipate that quantum computers have the capacity to crack the mathematical codes which protect cryptocurrencies and other digital assets.

Another FUD is that people can easily lose their cryptocurrencies through different ways such as hacking. They can also lose the cryptocurrencies if they send them to wrong wallet addresses. Such information can cause fear and uncertainty to people who are new to cryptocurrencies. However, it is true that we can lose our cryptocurrencies in these ways if we do not take precautions.

Crypto-sceptics denounced cryptocurrencies such as bitcoin for lack of intrinsic value. This is because cryptocurrencies are intangible like other precious assets such as gold and crude oil.They believe that the value of a cryptocurrency depends on the sentiments and perceptions of the market. This is one reason which has led to the relatively low adoption of cryptocurrencies.

Effects of FUD

Probably the greatest effect of FUDs is an increase in price volatility. In fact, a FUD can lead to a sharp decrease in the price of a token or coin. However, that should be a temporary decrease in the price of that particular cryptocurrency. Unfortunately, some investors may panic and sell their crypto holdings.

On the other hand, such short-time price decreases can create good opportunities for investors. They can buy the cryptocurrencies while the price is low then hold them, waiting for an uptrend.

How to deal with FUD

Every investor should set his/her investment goals and stick to them. They can also buy and hold several cryptocurrencies to hedge against price falls. In fact, holding is the best way to overcome the problem of FUDs. Another option is for the investors to convert their cryptocurrencies to stablecoins which maintain a stable value over a long period.

Conclusion

The cryptocurrency market experiences price volatility due to several factors which may include FUDs. Basically, a FUD is an acronym for fear, uncertainty and doubt. Fear and doubt in the market may force some investors to make illogical selling decisions, resulting in loss. Wars, natural disasters, government regulations, negative news and viewpoints of famous people may result in fear, uncertainty and doubt. The best ways of overcoming FUDs include sticking to your investment plan, holding the cryptocurrencies for a long time as well as diversifying the crypto portfolio.

Author: Mashell C., Gate.io Researcher

This article represents only the views of the researcher and does not constitute any investment suggestions.

Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.

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