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FUD stands for “fear, uncertainty, and doubt” and refers to a general mindset of pessimism about a particular asset or market, as well as the manipulation of investor or consumer emotions so that they succumb to FUD.

While the term “fear, uncertainty, and doubt” has been in circulation for a century or so, it became popular as the abbreviation FUD in the 1970s — and widely known more recently, thanks to the highly volatile crypto markets. FUD is also used throughout finance and can apply to any asset class.

Here’s what you need to know about FUD now.

What Does FUD Mean in Investing?

Investment strategies based on fear, uncertainty, and doubt are not usually recommended. Sometimes FUD might be justified, but in general, the term is used to describe irrational, overwhelming negative sentiment in the market.

Many investors have concrete or pragmatic fears and doubts. Some investors worry that they’ve invested too little or too late (or both). Others might fear a total market meltdown. Some investors worry that an unforeseen factor could impact their investments. These are ordinary, common concerns.

FUD is different, and it’s important to understand what FUD is. When investors talk about FUD, they’re referring to rumors and hype that spread through media (and social media) that drive impulsive and often irrational investor decisions. Think about the meme stock craze.

Thus the term FUD can often have a demeaning edge, in the sense that it refers to these unpredictable waves of investor behavior.

FUD vs FOMO: What Is the Difference?

What is FUD in stocks or the stock market? FUD can be thought of as the opposite of FOMO (fear of missing out). While FOMO tends to inspire people to do what others are doing — often in that they don’t want to miss out on a hot stock and potential gains — FUD can be described as a collective negative effect that spreads like wildfire, typically through social media.

When markets are going up, many people fall victim to FOMO trading, but when markets are going down, FUD can also spread swiftly. In the most basic sense, you could think of it like this: FUD equals fear and FOMO equals greed.

The two can sometimes be contrary indicators. In other words, when FUD seems to be everywhere, astute investors might actually be buying assets at reduced prices (aka buying the dip), and when many people are experiencing FOMO, seasoned traders might actually be selling at a premium.

Crypto traders offer a counter to FUD by using the term “hodl.” The hodl meaning is interpreted as “hold on for dear life.” Hodl comes from an old Reddit post where an investor posted a rant about having trouble timing the market, while misspelling the word “hold” several times.

The phrase was initially used in reference to Bitcoin but can apply to different types of cryptocurrency.

What Does FUD Mean in Crypto?

While FUD is often associated with investor sentiment in the crypto markets, the phrase “fear, uncertainty, and doubt” actually has a much longer history than many people realize.

The History of FUD

The general term “fear, uncertainty, and doubt” has been around for decades, and the use of FUD gained traction in marketing, sales, and public relations, through the 1980s and 1990s.

More recently, FUD has taken on a broader connotation in investing circles — particularly in the crypto markets — referring to the potential many investors have to succumb to sudden anxiety or pessimism that changes their behavior.

FUD and Crypto

In crypto, FUD has become a well-known crypto term, and it means one of two things:

1.    To spread doubt about a particular token or project in an attempt to manipulate prices downward.

2.    The general skepticism and cynicism about crypto as an asset class, and any related news/events. Even the rumor of a negative event possibly happening can generate FUD.

Again, FUD is not strictly relegated to the crypto space, but in recent years, it’s perhaps most commonly used when discussing crypto.

FUD Crypto and Memes

Crypto FUD also tends to involve the spreading of memes that can either amplify or lessen the FUD’s effect. Sometimes FUD being spread by the media is widely seen as trivial, in which case memes making fun of the idea might pop up. Or, if the FUD is perceived as more legitimate, memes making fun of those not taking the threat seriously might start circulating.

When Can FUD Occur?

FUD can occur whenever prices are falling or a big event happens that’s widely thought to be bearish. A company could miss earnings expectations or it could be revealed that an influential investor has taken a short position against a stock. Or the FUD could come from a larger source, like a pandemic, natural disaster, or the threat of a government defaulting on its debt.

The more catastrophic something could theoretically be, and the greater uncertainty surrounding its outcome, the more it becomes a suitable subject for people to spread FUD.
Sometimes markets react swiftly across the board to such news. Other times people take things out of context or exaggerate them, creating a sort of fake news buzz to scare others into selling.

In stocks and other regulated securities, it’s against the law to spread FUD with the intention of lowering prices. Doing so is considered to be a form of market manipulation and could subject individuals to legal action from regulatory agencies like the SEC, FINRA, or FINCEN.

As not all cryptocurrencies have been definitively classified as securities by all regulatory agencies, there is still some gray area. The idea that many altcoins could one day be deemed securities has itself become a big topic of FUD, because it would have a big impact on the regulatory landscape surrounding crypto

FUD Crypto Examples

Here are a few well-known examples of FUD in crypto. These examples show FUD at its finest. There are elements of truth to them, but the idea is that their detrimental impacts to asset prices are exaggerated to the point of hysteria.

China Banning Bitcoin

This might be one of the best examples of FUD in crypto, and perhaps the one that has been the subject of more memes and Twitter rants than any other.

At many points in recent years, officials in China have claimed to ban Bitcoin in one way or another. Of course, a real, comprehensive “ban” on Bitcoin would be a one-time event. What really happens is the Chinese government introduces some kind of restrictions for individuals or organizations involved in crypto markets, and media outlets report the event as a “ban on Bitcoin.”

In 2021, China really did make Bitcoin mining illegal in the country. Even so, markets shrugged off the event over time.

Government Regulation

Regulatory concerns coming from any national government can be a big source of fear, uncertainty, and doubt. Because crypto markets are still somewhat new, many countries have yet to adopt regulatory frameworks around crypto that provide specific rules around the use and taxation of cryptocurrencies.

Several countries have tried to make any use of crypto illegal, while others make public statements about harsh restrictions coming down the line. Whether the threat is real or perceived, the mere suggestion of governments cracking down on crypto transactions tends to spook investors.

The Fear of Lost Crypto

Nothing stokes investors’ fears like the idea of investment losses, but with crypto there’s the even greater dread of actually losing your coins. Unfortunately, there is some truth to that anxiety, in that there are notable cases of crypto being lost and never recovered, usually because someone loses the private keys that gave them access to their crypto.

Unfortunately, because crypto is decentralized, investors’ assets aren’t protected the same way they would be in traditional, centralized banking systems. (While it’s theoretically possible that all your cash money could vanish from your bank overnight, it’s highly improbable. And even if it did, you’d have the benefit of FDIC insurance.)

Influential Crypto Tweets

Another example of FUD includes some social media posts by famous people that had an immediate impact on a given type of crypto.

It’s important to remember that FUD moments don’t last, and the impact of a single power person on the price of a certain coin — even if it roiled markets for a period of time — was temporary.

Corporate Crypto Assets

In the last couple of years, several big corporations have launched, or announced plans to launch, a proprietary form of crypto. Unfortunately, it’s not that easy to get a new crypto off the ground — despite the many comparisons between the crypto markets and the frontiers of the Wild West — and the failure of at least one high-profile coin helped to sow FUD for some investors.

Solar Storms

Because crypto is digital, a great deal of FUD stems from technology-based fears that random events could take down electrical grids and effectively wipe out crypto holdings. One such FUD-inducing rumor is about the possibility of Earth being zapped by solar storms, but the scientific validity of this has yet to be confirmed.

The Takeaway

Crypto FUD is one of many crypto terms that have become popular, but the underlying concept — that fear, uncertainty, and doubt can influence investor behavior — is not new. In fact, FUD as an actual strategy exists in many spheres, including marketing, sales, public relations, politics (and of course crypto).

FUD can come from anywhere and be focused on just about anything, but crypto can be particularly vulnerable to FUD because this market is already quite volatile. It’s also a very new sector, and some investors don’t fully understand the technology involved, and they can be manipulated by alarmist rumors or even celebrity opinions.

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FAQ

Who uses FUD?

Some FUD arises naturally from market movements or economic conditions. Some FUD is deliberately cooked up to instill enough fear in the markets that investors make impulsive decisions, e.g. selling one type of crypto for another.

Why does FUD matter?

It’s important for investors to understand the concept of FUD so that they don’t get caught in the inevitable waves of negativity that can lead some people to panic and make poor choices.

What Counts as FUD?

Ordinary fears and concerns about market performance, or an investor’s personal long-term goals, don’t count as FUD. FUD refers to a broader market or crypto phenomenon, where highly negative information goes viral and causes investors to panic.

Photo credit: iStock/dolgachov