FUD is a new word, but not a new concept. It’s age-old. It has always been around, and it will always be around. It won’t go away. Let’s accept that and learn to deal with it, properly.
If everyone can have an adequate understanding of it, things can be improved. We can build a healthier community and industry as a whole.
The Need for FUD
You need to understand the underlying motives. People need to influence other people, especially in trading. Traders go through 4 cycles.
You want to enter the market, i.e., you want to buy, but haven’t done so yet. Now, you wish the price could be a touch lower. You probably don’t want it to go over a cliff. But I guess you can always change your mind if it did. You are susceptible to FUD, or even happily contribute to it ever so slightly. You might not know you are doing it. It’s quite easy, as you will see later.
You just bought, now you want the price to go up. You want to smack anyone spreading FUD on the head, but by getting into arguments with those guys, you are only helping to attract more eyeballs to it, and hence spreading it.
You wish to sell and get out of your positions. Now, you really wish the price could go just a touch higher. You probably will do everything you could to spread the good news, saying how great the coin is. You will fiercely argue with any FUD.
You just got out of your position, i.e., you just sold. You now want the price to drop. It could be just for psychological reasons or bragging rights. Or if you plan to buy back in at a lower price. You don’t mind to see a cliff. You have high motivation and are happy to create, exaggerate, and spread FUD.
Traders go through these cycles all the time. When there is a need, backed by financial incentives, for people to spread FUD, it will happen.
For big traders, these cycles are bit longer. It could take them days to load up (buy) their positions. During this time, they are happy to help spread FUD to keep the prices low. As they are close to finishing buying, they will tend to flip to spreading positive news, and use the last leg of their funds to push the price up, in the hope to start a trend, then sell high again.
Historically, the big guys have used rumors and news on TV, radio, and magazines to their advantage, over and over again. Nowadays, it’s easier and cheaper to spread FUD on social media, and decentralized free “press”. So, more reasons to do it.
Easy to Spread
FUD is easy to create and spread. All you have to do is to ask stupid and innocent-sounding questions. A says to B: “is Obama having an affair?”. B: “What? Really?” B to C: “I heard Obama is having an affair, is it true?”. C to D: “Obama is having an affair, the market is going to crash, get me out, sell all my positions”. C goes on Twitter: “What’s the latest with @Obama having an affair? #ObamaAffair”...
For some reason, FUD is born with some amazing characteristics, for us humans. Our genes are designed to transport and spread it, better than any virus.
Negative news travels faster than positive ones amongst our species. When something bad happens, we tell everyone. When something good happens, we don’t say a word.
Uncertainty (rumors) spikes our curiosity. We just have to find out. Our quest for knowledge and understanding often leads us to waste time in precisely the wrong direction. Again, our quest, in the form of questions, help spread rumors, leading others into the wrong direction too.
Our uncontrollable urge to correct “wrong information” drags us into endless useless debates in Telegram groups, Slack, Reddit, Wikipedia, or anywhere on the internet, thereby keeping the topic top-of-thread, top-of-group and top-of-mind. Google Cunningham’s law. You will understand why you waste endless hours on discussions with, you knew, an idiot on the other end. Even after understanding Cunningham’s law, people still exhibit this behaviour. It’s just hard to control.
So, how do we deal with FUD?
Use your judgment. Believe in your own logic and common sense. Don’t just believe anything some guy in some forum says without verifying. Get to the source and follow the rabbit down to the origin. If you can’t follow the chain, don’t believe it.
Kill it, don’t spread it
Until you are sure, don’t ask stupid questions that help spread FUD in groups or on social media. Don’t participate in discussions about it. If you are an admin or mod of a group, just kill it in its crib.
Think about why people are spreading this “news”, who is spreading it? Who could benefit from it? Who could lose from it? Often, the guy yelling “bitcoin is banned” is precisely the guy buying bitcoins from you. A few whales picked up a lot of bitcoins during the recent China FUD. By the time the official news came out, they had finished accumulating, and price only went up from there. Of course, everything situation is different.
Here is one last real example, closer to home. A guy picked 6AM our local time, probably having just sold all his LINK (I didn’t bother to check, as I don’t want to waste my time), noticed our hot wallet was relatively low on LINK. He made a post somewhere saying he “drained all LINK from Binance”. He started talking to people about the post in various groups. It spread. People dreamed up of all kind of possible doomsday scenarios. Others started to withdraw LINK from Binance. Due to the sudden increase in withdrawals, our risk management system blocked replenishing of the hot wallet for human review. An hour later, I woke up to a screen of messages from everyone I don’t know asking me questions. I knew there was FUD again. It took us a couple of calls to figure out what had happened. We had zero issues. We then put USD 5MM worth of LINK onto the hot wallet. The FUD died, in less than 2 hours. But the guy probably already bought back in at the low point, and walked away with a decent chunk of profit at other people’s expense. Now you see how it works and who is losing.
Learn how to get reliable intel and choose who to trust wisely. Don’t just live on FUD; it’s a poor man’s life. Hope this basic article helped you in some way.
Live long and prosper!
CZ, Binance CEO