FUD: Main Reasons for Occurrence
As a rule, fear, uncertainty, and doubts regarding cryptocurrency market transactions are always caused by several factors:
- sharp fluctuations in the crypto-asset’s price;
- high-profile statements by opinion leaders;
- changes in government regulation;
- hacker attacks and other big news.
Next, we’ll take a closer look at the main triggers of FUD in the crypto community. Let’s break down examples of how fear, uncertainty, and doubt affect the market.
Price Change in Crypto-Assets
A substantial change in the price of a particular digital asset can be both a consequence of FUD and a reason for its occurrence. Often, traders and investors begin to experience fear, uncertainty, and doubt when the prices of some digital coins change dramatically.
For instance, if Bitcoin falls by 10-20%, the price of other crypto-assets usually drops noticeably. Bitcoin can fall in price for months at a time, triggering bearish sentiment in the market, and causing users to sell assets. FUD in this situation assumes:
- fear that capital will be lost;
- uncertainty about further price movements;
- doubts as to whether the major cryptocurrency will ever be able to regain its previous position.
A marked decline in the price of major crypto-assets is one of the key factors causing FUD in the community. Consequently, FUD affects the crypto-assets’ liquidity and trading volumes.
Fraud and Vulnerabilities
Fraudsters occasionally manage to hack into cryptocurrency services and protocols, exposing serious security vulnerabilities. This provokes a FUD effect in the crypto community. Rumors about cryptocurrency platform vulnerabilities are sometimes enough to make users sell off their assets en masse.
For example, on August 10, 2021, attackers succeeded in hacking the Poly Network exchange. The attack targeted a cross-chain protocol allowing transactions between different blockchains without mandatory conversion through exchanges. The stolen funds amounted to about $610 million. The market reacted with a short-term drop of almost 10%.
The more users sign up for a crypto exchange, the more acute the issue of personal data security becomes. In addition, the fraudulent management of cryptocurrency exchanges can be exposed. Among the cryptocurrency exchanges and services found to be fraudulent are the following platforms:
- Africrypt;
- Mirror Trading International;
- Thodex;
- PlusToken;
- OneCoin.
Therefore, amid the news of hacking of cryptocurrency exchanges and services, users also begin to experience fear and doubt. FUD can manifest itself in the sudden withdrawal of crypto-assets from exchanges, as well as the sale of certain tokens and a sharp drop in their price.
State Regulation
A large number of states have already developed regulatory mechanisms for digital coins. However, negative changes in government policy regarding cryptocurrency may well cause FUD in the community. Besides, fear, uncertainty, and doubt can be caused simply by waiting for a bill to be passed regarding digital assets.
Regulators affect the overall changing dynamics of the cryptocurrency market. For example, in May 2021, the People’s Bank of China announced that all crypto transactions would be considered illegal, and violators would be prosecuted. Due to the adoption of this law, Bitcoin fell by $3,000.
In addition to China, conducting any transactions with crypto-assets is prohibited in the following countries:
- Turkey;
- Egypt;
- Algeria;
- Bolivia;
- North Macedonia, etc.
If major countries impose a ban on mining cryptocurrencies or prohibit transactions, FUD appears in the community. Consequently, the impact of strict regulatory mechanisms is immediately reflected in the price of the main cryptocurrency and the entire market capitalization.
Statements by Public Figures
The opinion of public personalities regarding Bitcoin and other crypto-assets also affects the sentiment in the community. For example, on May 16, 2021, Tesla CEO, Elon Musk, tweeted criticizing Bitcoin for its lack of decentralization. Musk also added that the major assets of the main digital coin are concentrated in a limited number of crypto wallets. After that, the BTC exchange rate fell by almost 10%.
Forceful statements of opinion leaders targeting one or another crypto-asset can cause fear, uncertainty, and doubt among users, which has the potential to result in a noticeable drop in the coin’s price. The same applies to cryptocurrency projects, which can remain without investment and users.
FUD: Negative and Positive Aspects
FUD in the cryptocurrency community is an unpredictable process, opening several positives and negatives for the user. The negative aspects include the following:
- falling prices of cryptocurrency assets;
- the possibility of losing a significant portion of capital;
- the unpredictability of this process.
FUD in the cryptocurrency community can last for months. Think back to the major Bitcoin crashes. A FUD mood is typical for a bear market and inexperienced users in such a situation start to sell assets. However, for crypto enthusiasts and experts, FUD can provide new opportunities. The main positive side that FUD opens up is an opportunity to buy a certain crypto-asset at a low price.
