FOMO: the influence on cryptocurrency trading – The Cryptonomist

The world of crypto trading has introduced us to an array of new experiences and phenomena, one of which is the Fear of Missing Out, or FOMO.

In the context of cryptocurrency trading, FOMO describes the anxious feeling that one might be missing out on a lucrative investment opportunity, leading individuals to make impulsive trading decisions.

This phenomenon has been amplified with the advent of real-time trading platforms and round-the-clock news cycles.

The psychoanalytic theory, pioneered by Sigmund Freud, provides a useful lens through which to view the FOMO phenomenon. According to Freud, the human psyche is divided into three parts: the id, ego, and superego.

The id operates on the pleasure principle, seeking immediate gratification, while the ego functions on the reality principle, trying to balance the ids desires with the constraints of the real world.

In the world of cryptocurrency trading, the id might be seen as the driving force behind the desire to invest in every promising cryptocurrency, driven by the fear of missing out on potential profits.

The ego, in contrast, attempts to mediate these desires, taking into account practical considerations such as financial constraints and risk tolerance. The resulting tension can manifest as FOMO.

Cryptocurrency markets, with their volatility and potential for high returns, are fertile ground for FOMO.

The 24/7 nature of these markets, coupled with the constant barrage of news and updates on various platforms, can create a sense of urgency and fear of missing out on potential gains.

In a study published in the Journal of Behavioral and Experimental Finance in 2019, researchers found that individuals who frequently checked cryptocurrency prices and followed related news were more likely to exhibit signs of FOMO.

This suggests that constant exposure to market fluctuations and news can both cause and exacerbate FOMO.

Freuds superego represents the internalized societal and parental standards of behavior. In the context of FOMO, the superego could be perceived as the internal voice comparing ones own investment performance with that of others.

This process of social comparison, which social psychologist Leon Festinger proposed in 1954, is integral to understanding FOMO in the cryptocurrency sphere.

Traders often compare their performance to others, particularly in online communities where individuals frequently share their successes.

This can lead to feelings of inferiority and FOMO, particularly when ones own investments are not performing as well.

FOMO can have serious psychological implications for cryptocurrency traders. It can lead to impulsive trading decisions, financial stress, and even addiction-like behaviors.

A study published in the journal Addictive Behaviors in 2020 found a correlation between high levels of FOMO and problematic cryptocurrency trading.

Furthermore, FOMO can create a vicious cycle. As traders experience FOMO, they may increase their market engagement in an attempt to mitigate their feelings of anxiety, thereby exposing themselves to further FOMO-inducing scenarios.

In conclusion, the FOMO phenomenon within cryptocurrency trading represents a fascinating interplay between unconscious desires, social comparison, and the influence of digital technology.

Psychoanalysis provides a useful framework for understanding how the ids desire for immediate gain, the egos grounding in reality, and the superegos inclination towards social comparison play out in this high-stakes digital arena.

The implications of FOMO are significant, contributing to impulsive-trading decisions and potential financial distress. This highlights the importance of awareness and education in the field of cryptocurrency trading. Understanding the psychological underpinnings of behaviors such as FOMO can equip traders with the tools to manage their emotions and make more informed decisions.

Furthermore, FOMO challenges us to reevaluate our relationship with digital trading platforms and the 24/7 information cycle.

As we continue to navigate the volatile cryptocurrency markets, it becomes imperative to strike a balance between staying informed and maintaining psychological well-being.

Lastly, the phenomenon of FOMO provides a rich avenue for further research in the realm of cryptocurrency trading. As this area continues to evolve, so too will our understanding of the psychological factors that drive trading behavior.

Exploring such phenomena underscores the ongoing relevance of psychoanalytic theory and illuminates the profound impact of digital technology on our financial behaviors and decision-making processes.