FUD - what is it in cryptocurrencies?

The acronym FUD stands for fear, uncertainty, and doubt. These emotions drive people to sell cryptocurrencies, which leads to a decline in their price. FUD can also occur in traditional markets, but its impact is particularly significant in the cryptocurrency market.

FUD in the cryptocurrency market often arises due to:

• News or rumors about government regulations. One important characteristic of FUD is that sometimes there may be nothing behind it except rumors spread by someone.
• Criticisms of cryptocurrencies by prominent individuals.
• Sharp price drops.

Since cryptocurrencies are still a relatively new phenomenon, countries around the world are still figuring out their approaches to them. Some countries recognize them as currencies (like Japan), while others consider them assets and subject them to taxation (like the United States), and some have imposed various restrictions on them (like China). If the status of cryptocurrencies deteriorates in any country, it can cause FUD because it becomes more difficult for people from that country to buy cryptocurrencies, thus limiting the market. If the country is large and influential, even rumors of future restrictions can cause significant concerns.

Statements by well-known individuals whose opinions are considered valuable in the financial or IT sphere usually do not cause such a strong market reaction. However, they can still have a substantial impact. For example, Jamie Dimon, billionaire and CEO of JP Morgan Chase, one of the largest banks in the United States, once commented that Bitcoin is a fraud and its eventual collapse would result in significant losses for buyers. This caused a 6% drop in the price of the leading cryptocurrency.

Finally, sharp price drops in cryptocurrencies lead to FUD. Some investors panic and decide to cut their losses, while others see an opportunity to buy at a lower price, which further accelerates the decline. The consequences can vary: sometimes the market recovers from such drops within a few days or even hours, while in other cases, it may take much longer. FUD represents not only challenges but also opportunities as it provides good entry points into the market. Therefore, anticipating FUD is often part of the strategies of professional traders.