FUD is a commonly used expression in the crypto ecosystem. It reappears in particular during catastrophic events such as the fall of FTX. So what is FUD and where does it come from?
Definition and origins of FUD
FUD is an English acronym that designates the terms Fear, Uncertainty et Doubt. In other words, fear, uncertainty and doubt. This expression refers to a state of mind of pessimism and fear towards a particular asset or a market in general.
Recently, we can say that Crypto.com falls victim to FUD following the bankruptcy of FTX. The FUD also designates the manipulation of emotions by certain actors who intend to scare others about an asset or a market.
Some considered Binance CEO CZ to be using the FUD regarding FTX during his statements comparing the FTT to the LUNA. The rest of the story however, showed us that he was indeed right.
This expression has been around for more than a century but really became popular in the 1970s. It has recently gained momentum with the explosion of the crypto market although it can apply to any sort of asset.
The FUD generally describes a negative feelingsometimes irrational which can crush the market. It sometimes deviates from rationality and the mass effect, especially on social networks, means that it can quickly amplify.
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FUD and its different forms
When it comes to investing, FUD can take many forms. It can be the negative rumors around an asset, its solidity, its uncertain future, etc. which will come to destabilize the course of the latter.
It can also be a more global FUD that predicts the collapse of a market as sometimes seen at work in the crypto market. Other investors may take fright following an event that would have a disastrous impact on the future of their asset. FUD may induce the investor to take irrational decisions. The latter, listening only to his emotions, can make a quick decision under the influence of fear and doubt.
When it comes to investing, there are many emotional biases. We know for example that a loss of 1000 dollars has much more intense effects than a gain of the same amount. This bias reinforced by FUD can lead to sudden and hasty decisions.
FUD can occur when the price of an asset begins to fall or when a major event occurs. The pandemic was an accelerator of the FUD which was able to spill over into the crypto market at the time.
Rumors can also lead to a FUD as in the case of the insolvency of Alameda Research and FTX. If the latter were justified, remember that it all started with a press article that caused the price of the FTT to plunge.
The scale of FUD
The more an event is considered important or of considerable magnitude, the greater the FUD will be. It should be noted that the markets tend to react hotly and sometimes in excess, so they are a favorable place for FUD.
However, it is important to point out that in the context of shares or other regulated securities, it is illegal to spread rumors intending to do drop prices. Indeed, this action is assimilated to market manipulation and may lead to legal action by the SEC or FINRA.
As part of the crypto market, less regulated, it can be seen that FUD is used often and that the perpetrators do not risk much. Ironically, crypto regulation is a regular topic at FUD.
Banning Bitcoin: An Example of FUD
In order to better understand the magnitude that FUD can take, here are some examples that have hit or regularly hit the crypto market.
One of the most telling examples is surely the Bitcoin ban by Chinese authorities. Every year, if not several times a year, Chinese officials suggest that theasset will be banned in the country in one way or another. This headline was a hot topic a few years ago and brought significant FUD to the crypto market.
These various announcements have lost in impact over time and the market now seems to be laughing at these announcements from the Chinese government about whether or not to ban Bitcoin.
What’s that all about then? 👀 Did China ban bitcoin again? 😂 pic.twitter.com/oXtQSDbc8z
— xHatter ⚡🐶🦆🐺 (@hatterscrypto) September 6, 2022
Crypto regulation also worries investors
Another recurring subject of FUD, regulation of crypto assets. This subject comes up regularly on the front of the stage. It is one of the main sources of fear, uncertainty and doubt in the ecosystem. For now, this market is still poorly regulated. Also the various announcements of legislative work on the part of such and such a government sometimes lead to significant FUD.
Some governments like to make statements about the severe restrictions they want to put in place. These ads sometimes amplified by social networks may scare off some investors. This subject is one of the most sensitive for the crypto industry and is still likely to bring fear, doubt and uncertainty in the years to come.
The FUD is therefore a powerful phenomenon that should not be taken lightly. It is recurrent in the crypto market and can lead to making bad decisions under the influence of emotion. Like its cousin, the FOMO (Fear of Missing Out), it is not always noticeable. However, it often leads to making bad choices!
To learn more about the predictions for Bitcoin in 2023, find our article here.