Cryptocurrency Prices Surge, Igniting FOMO – Here’s How to Keep Your Portfolio from Derailing
Cryptocurrency prices are surging once again, with Bitcoin rising 131% this year. Smaller digital tokens, such as dogecoin, have seen even more pronounced gains. This volatility can be attributed to investor speculation, rather than fundamental factors. As a result, market experts caution that cryptocurrency prices can fluctuate rapidly, making it essential to keep emotions in check.
Behavioral finance experts refer to the phenomenon of feeling left out as “regret aversion” or “FOMO” (fear of missing out). While it’s natural to feel tempted by the promise of quick profits, FOMO can lead to reckless decisions that jeopardize a portfolio.
To avoid succumbing to FOMO, Amos Nadler, founder of Prof of Wall Street and a Ph.D. in behavioral finance and neuroeconomics, recommends the following framework:
Step 1: Acknowledge Your Feelings
Recognize your emotions and acknowledge that it’s okay to feel excited or curious about an investment.
Step 2: Are You Investing or Speculating?
Distinguish between long-term investments based on fundamental analysis and speculation driven by price alone. Cryptocurrencies often lack underlying fundamentals, making them more susceptible to price swings.
Step 3: Find a Realistic Position
Assess what you’re willing to risk and set realistic expectations. If you’re speculating, consider allocating a small percentage of your portfolio to test the waters.
By acknowledging your emotions, differentiating between investing and speculating, and setting realistic positions, you can keep your FOMO in check and make informed decisions that align with your financial goals.