What is FOMO and how does it relate to cryptocurrencies?
FOMO is a social anxiety term that stands for “the fear of missing out.” It was originally used by Dr. Dan Herman in 1966. The term itself was actually coined in 2004 by Patric McGinnis in The Harbus magazine.
FOMO today is viewed as a vital marketing strategy. Various companies worldwide implement FOMO on their products by letting customers know about a product’s scarcity, time limitations on the offer, or simply making the product trending among a targetted audience.
What Does Have FOMO to do with Cryptocurrencies?
Same as in many businesses, cryptocurrencies also entail the fear of missing out (FOMO).
When it comes to scarcity, cryptocurrencies that have a limited supply show investors how much cryptocurrencies are left that are not mined yet.
Let’s take as an example Bitcoin (BTC), the world’s first and biggest cryptocurrency. Bitcoin has a limited supply of 21 million BTC. As of 2021, around 18 million BTC have already been mined, and the rest are planned to be mined until 2140. People that invest in cryptocurrencies have access to this information, and they are more inclined to buy Bitcoins because of the FOMO from its scarcity.
Time limitations are also a vital aspect of FOMO. Big cryptocurrencies such as Bitcoin usually have a relatively high price. When the price of Bitcoin goes down, many people want to buy more Bitcoins because the law of demand states that when the price is lower, demand increases. However, when demand increases, it causes a shortage, and whenever there is a shortage, the price will increase again. Investors, knowing that the price may be low for only a short period, invest in Bitcoins to not miss out on this temporary lower price. Hence, time limitations are also a feature of FOMO.
FOMO in cryptocurrencies also occurs if a cryptocurrency is trending. Elon Musk, CEO of Tesla, is very powerful when it comes to affecting the price of a cryptocurrency. Since Elon Musk is known as a whale investor (large investors), only mentioning a cryptocurrency on social media makes people think that Elon Musk will invest in it and drive the price of that cryptocurrency very high.
A relevant example would be Dogecoin. In December of 2020, Elon Musk just mentioned the word ‘doge’ on his Twitter.
One word: Doge
— Elon Musk (@elonmusk) December 20, 2020
This caused the price of Dogecoin to increases massively in the following months because many people invested in it due to the possibility that a whale investor such as Elon was going to increase its price.
As such, FOMO can occur even if a cryptocurrency is simply trending.
Takeaways
- FOMO is a social anxiety term that stands for “the fear of missing out.”
- In cryptocurrencies, FOMO occurs because of scarcity, time limitations, or popularity of a cryptocurrency.
- FOMO because of scarcity occurs when investors are aware of the limited supply of a cryptocurrency.
- Time limitations cause FOMO because investors fear missing out on a temporary lower price of a cryptocurrency.
- When a cryptocurrency is trending, people are inclined to invest in it because of the possibility that retail and institutional investors can increase the price.