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10 juin 2022

FUD

FUD refers to fear, uncertainty and doubt, which can be a common tactic used to strike fear in users in order to manipulate cryptocurrency prices downward.

Fear, uncertainty and doubt, commonly known as FUD, is a term that refers to emotional sentiments in investors, usually with negative connotations, incited by competitors regarding a certain product or brand. For cryptocurrency, whose inner workings are still shrouded in mystery for some, such sentiments can easily be stoked by speculation and rumors on both social and news media. This can lead to price fluctuations with investors buying or selling en masse. This effect tends to be more pronounced when the market is down.

What Causes Crypto FUD?

There are two main reasons why crypto FUD occurs. It can be due specifically to the targeting of a particular coin or project’s credibility, thereby causing its price to fall, or undermining crypto’s viability as an asset class to impact the investment value. While skepticism isn’t surprising when it comes to any new technologies like cryptocurrency and blockchain, the lack of understanding in the technology — along with negative media portrayal of connections to illegal money-laundering activities and massive energy consumption — can easily turn public skepticism to cynicism. For example, the 17-hour outage on the Solana network in 2021 has generated significant FUD, especially around its technology capabilities and security. [Editor’s note: Recent Solana outages also exemplify the FUD that can result from continuing technological issues.]

Such negativity toward crypto bodes well for centralized financial institutions, who may see the decentralized aspects of crypto as a threat to established systems. This may be the reason why some governments such as China are adamant on banning crypto, which further exacerbates crypto FUD. Other than media portrayals and government stances, FUD can also take place on a micro level — for example, via social media posts by an investment influencer on the reasons why crypto just isn’t for them, or why certain coins may have issues in the long run.

Effects of Crypto FUD

When FUD is based purely on speculation and unfounded rumors, it usually doesn’t result in long-term impact on crypto investment values. Even if it’s widespread enough to cause the price of a coin to fall, the value will generally bounce back in no time. For example, when China announced its intention to crack down on cryptocurrency harder with a new ban, Bitcoin prices were only affected briefly before recovering in a day. As such, while less informed investors may make rash decisions to sell their coins out of fear, astute investors may buy these coins at reduced prices, believing that the drop is only temporary, thereby strengthening both the coin and the crypto market’s resilience.

Such blatant negativity may strengthen the support of those who trust and appreciate the decentralized nature of cryptocurrency and blockchain, believing that it’s the answer to existing centralized financial systems — and the future of financial transactions.

To sum up, factors driving FUD can come in any form and from anywhere. It can result in financially unsound decisions, made by investors who are more anxious and less savvy. Although many may advise to HODL and keep your coins, even during a price drop, it’s important to keep in mind that the cryptocurrency markets are still relatively young and volatile, without sufficient historical evidence of consistent returns that can forecast a recovery. The key is therefore to rationally consider all information and updates you’re receiving from various sources on a coin or crypto asset before you come to an investment decision, rather than succumbing to FUD with panic selling.