What is FUD? FUD syndrome in financial transactions

FUD is one of many securities terms but can be applied to any asset class. Recently, this phrase has especially appeared in the field of cryptocurrencies. Bitcoin and cryptocurrencies have seen an extraordinary amount of FUD over the years and this still happens often to this day. So what is FUD?

1. What is FUD?

FUD is a term that refers to the general mindset of pessimism about a particular asset or market. FUD is applied to information or events with negative effects that are exaggerated or fabricated. FUD-based investment strategies are generally discouraged.

FUD and FOMO
FUD and FOMO

Generally, the term is used to describe unfounded negative sentiment in the market. FUD can be seen as the opposite of FOMO (fear of missing out). While FOMO tends to affect people on a more individual level, as they don’t want to miss out on potential benefits, FUD can be described as a collective effect that spreads like wildfire, usually through social media. When the market goes up, many people fall victim to FOMO trading, and when the market goes down, FUD can spread more easily. In the most basic sense, you can think of it like this: FUD is equivalent to fear and FOMO is equivalent to greed.

The two can sometimes be opposite indicators. In other words, when FUD seems to be everywhere, investors may be buying assets at a discount, and when more people are experiencing FOMO, seasoned traders may actually be selling with Higher price.

Cryptocurrency traders provide counters for FUD using the term “hodl”. The meaning of hodl is understood as “hold on for dear life”. Hodl comes from an old Reddit post where someone posted at length about having trouble timing the market while misspelled the word “hold” multiple times. This phrase was originally used to refer to Bitcoin but can be applied to different cryptocurrencies.

2. What is FUD in Cryptocurrency?

In cryptocurrencies, FUD means either of the following:

1. FUD sows doubt about a particular token or project in an attempt to drive the price down

2. FUD is general skepticism and skepticism about cryptocurrencies as an asset class and any related news/events

In September 2021, the Solana (SOL) network (a smart contract platform that competes with Ethereum) was down for about 12 hours. This is an example of the type of event that can produce a significant FUD, regardless of the initial cause or the eventual resolution. Even the rumor of a possible negative event can create FUD.

What is FUD?
What is FUD?

FUDs can be built on anything:

• A crypto influencer tweets that Tesla won’t accept BTC payments: FUD

• China bans Bitcoin for the 5th time this year: FUD

• An Investment Manager Says They’ll Never Own Cryptocurrency: FUD

Cryptocurrency FUDs also tend to involve the spread of memes that can amplify or diminish the effects of FUD. Sometimes FUD is widely seen as trivial by the media, in which case memes mocking the idea may emerge. Or, if FUD is deemed more legitimate, memes mocking people who don’t take the threat of FUD seriously could start circulating.

3. When can FUD happen?

FUD can happen whenever prices drop or a major event occurs that is widely considered to be bearish. FUD can come from a broader information, such as a pandemic, natural disaster, or the threat of a government default. Theoretically, the more catastrophic something is, and the more uncertainty surrounding its outcome, the more relevant it becomes for people to spread FUD. Sometimes the market reacts quickly across the board to these FUD news.

For stocks and other regulated securities, it is against the law to spread FUD for the purpose of lowering the price. Doing so is considered a form of market manipulation and could subject individuals to legal action from regulators. Going forward, many altcoins that can one day be considered securities have become a major topic of FUD, because it will have a major impact on the regulatory landscape surrounding cryptocurrencies.

4. Example of FUD . cryptocurrency

Here are a few famous examples of FUD in electronic money. These examples show FUD at its best. There are FUDs that come true, but the idea that their harmful effects on asset prices are exaggerated to the point of exaggeration.

4.1. China Bans Bitcoin

FUD on the event of China banning Bitcoin
FUD on the event of China banning Bitcoin

This might be one of the best examples of FUD in crypto and is probably one of the subjects of more memes and Twitter than any other example.

Practically every year since cryptocurrencies hit hard and sometimes several times per year, officials in China announce they will ban Bitcoin in one way or another. Of course, a true, full-blown “ban” on Bitcoin would be a one-time event. What actually happened was that the Chinese government put some kind of restriction on individuals or organizations involved in the cryptocurrency market and the media reported the event as a “ban on Bitcoins”.

In 2021, China has actually made Bitcoin mining illegal in the country. Even so, the markets dismissed the event in time.

4.2. Government regulations

Legislative concerns coming from any national government can be a great source of fear, uncertainty, and doubt. Because the cryptocurrency market is still relatively new, many countries have yet to adopt regulatory frameworks that create specific rules for the use and taxation of cryptocurrencies.

Some countries have tried to make it illegal to use cryptocurrencies, while others have made public statements about the harsh restrictions that are about to be imposed. Whether the threat is real or perceived, the mere suggestion of governments cracking down on crypto exchanges tends to spook investors.

4.3. Bitcoin has a huge impact on the environment

Another example of FUD is the argument that Bitcoin uses so much energy that it is unsustainable, making it a dangerous threat to the planet. The truth is that the majority of bitcoin mining is done with renewable energy. Gold mining, banking, transportation, construction, healthcare, and other industries use exponentially more energy than is needed to maintain the Bitcoin network. The banking sector alone used more than twice the energy of Bitcoin.

Epilogue:

General, FUD can come from anywhere and focus on anything. Some content creators have even turned FUD into a marketing tactic: They create YouTube videos, blog posts, or investment newsletters designed to ignite fear in their audience. Then the creators come up with something that promises to allay fears from FUD.