The world of cryptocurrencies is developing rapidly, attracting investors and crypto enthusiasts with promising projects. However, along with promising projects, there are also potential ‘scares’ on the market that can lead to the loss of crypto enthusiasts' funds, and sometimes considerable ones. One of them is ‘Shitcoins’, i.e. cryptocurrencies that do not actually have any real value or long-term potential. At the same time, one of the factors that push investors to invest in such projects is a phenomenon called FOMO or Fear of Missing Out. Today's article explains what shitcoins are and how to recognise them, as well as how FOMO can affect your analysis.

All That Glitters is Not Gold

Therefore, the name Shitcoins conveys their potential idea. The term is used to describe cryptocurrencies that lack meaning, value and trust. They are usually created with little or no innovative intentions, mostly as a quick money-making scheme. They tend to have limited liquidity, which makes them vulnerable to price fluctuations, often fuelled by market manipulation and speculation.

_So, how do you know if you are looking at a Shitcoin? _

Shitcoins have unique features that make them easy to recognise.

• Creation: Such coins are often created in a hurry with minimal effort. For example, a developer with basic coding skills can branch off an existing blockchain, change a few parameters, and launch their own coin.
• Marketing hype: Usually, shitcoin developers use an aggressive marketing strategy to attract investors. To increase the hype around the coin and raise its price, they hire numerous influencers who, in turn, praise the project's innovation, high profitability, or unique features that are not actually true.
• Pump-and-Dump schemes: This scheme is one of the most popular tactics used by Shitcoins creators and promoters. The idea is that they artificially inflate the price of the coin by spreading false or misleading information, attracting unsuspecting investors. When the price reaches a certain level, they ‘dump’ their assets, causing the price to drop and other investors to suffer significant losses.
• Lack of utility: They have no real technology that can prove their value.
• Short life cycle: Such coins usually have a short life cycle and rarely survive in the long run. That is, after the initial hype and easy profits for ‘insiders’, they disappear into oblivion as soon as potential investors begin to understand their real value.
• Security risk: The Shitcoin code may contain vulnerabilities or backdoors that can be exploited by hackers, which creates security risks for users.

Examples of such coins are Bitconnect (BCC), DogeCoinDark (DOGED), BitPetite (BPT), B2X (SegWit2x), Prodeum (PDE).

Shitcoin or a Promising Project?

So, taking into account the key features of these coins, let's see what you need to consider before investing your money and making sure that it is a Shitcoin or a promising project?

• White paper: The first thing you should pay attention to is the project's white paper. Most often, it does not contain any information about the use of technologies, or rather, it is simply plagiarised from other developments.
• Doubtful team: Check the team behind the coin. For example, if they are working under a pseudonym or have a history of questionable projects, you should be wary. Usually, reliable projects have an open team with a proven track record.
• Community: Most often, genuine projects have an active and engaged community. So, if there is nothing written about the coin on the subreddit or on social media pages, you should think about whether it has anything of substance.
• Hasty development: If the developers of a coin claim to have achieved breakthrough results in an unrealistically short time, it may be a sign that they are more interested in creating hype than in creating something serious.
• Lack of practical application: A good sign of a legitimate project is its use in various fields. If a coin has no partnerships, integrations, or real-world applications, it may not be worth your time.

Remember that «all that glitters is not gold». So, before investing your money, do your research and don't let FOMO guide your decisions. After all, as the famous «duck test» states, «if it looks like a duck, swims like a duck and quacks like a duck, it probably is a duck».

FOMO - What It Means and How to Deal With It?

One of the factors that may motivate you to invest in a potential shitcoin is FOMO, or the fear of missing out. In the cryptocurrency world, this feeling is often associated with a missed lucrative trade or Retrodrop that could have brought in a significant profit. Under the influence of FOMO, traders may make spontaneous purchases, fearing that otherwise they will lose the chance to make a profit. This phenomenon makes everyone who has already missed the opportunity to make money on the Retrodrop greedily rush into all projects without prior analysis.

When fear of losing an opportunity becomes the main motive for buying, traders may ignore important factors that affect the real value of an asset. Therefore, it is important to understand the key points that cause FOMO in order to better overcome this phenomenon.

1. Appearance of a new coin on the market: As the crypto market is growing steadily, it is constantly flooded with new coins that look promising. As a result, some traders may feel afraid of missing out on an early investment opportunity and buy a coin without a detailed analysis of its potential.
2. Market volatility: The crypto market is quite volatile, and rapid price changes can occur in a matter of minutes, making it particularly prone to FOMO. Significant price fluctuations create a sense of urgency among investors: if you miss the moment, you will lose the opportunity. This behaviour pushes traders to make hasty decisions, which can often lead to significant losses due to unpredictable market fluctuations.
3. A winning or losing streak: The psychological aspect of FOMO can also manifest itself during a winning streak. After all, when traders are successful in their investments, it can encourage them to adopt more aggressive strategies in the hope of extending the ‘winning streak’. At the same time, a losing streak also contributes to FOMO, as fear and the desire to ‘recoup’ losses drive the search for new big opportunities.
4. Peer pressure: Often, the decision to invest can be influenced by pressure from friends or colleagues. People see that someone else is making significant profits from investments and feel the need to join the market to ‘be in the trend’. However, this can lead to impulsive decisions based on external pressure rather than on their own research or analysis.
5. The role of social media: Social media has become an important communication tool in the cryptocurrency world as well. Users often discuss their investments, strategies, and news on platforms such as X, Reddit, Telegram, etc. Positive news or ‘high-profile’ posts can encourage other users to act on emotions rather than rational decisions and analysis.
6. Media hype: High-profile headlines about record price increases or asset successes can further fuel the interest of a wide audience. Media hype often leads crypto investors to feel afraid of missing out on a great opportunity.

In particular, one of the most famous examples of FOMO was a rumour published by Cointelegraph in 2023 about the approval of spot bitcoin ETFs. As a result, the price of bitcoin rose by almost $2,000 in a few hours before the rumour was denied, and an apology published, which subsequently led to a further drop in price.

So, how can you avoid falling under the influence of FOMO and effectively resist it in trading?

Make a solid trading plan: The best way to combat FOMO is to have a clear plan of action. It should include: criteria for entering and exiting a trade, the level of risk you are willing to take, and a money management strategy. Having a specific plan will make you less likely to act impulsively and allow you to think with a cool head rather than relying on emotions.

Proper portfolio construction: Portfolio diversification helps to reduce risks and stabilise potential returns by spreading investments across several asset categories, such as different cryptocurrencies, stablecoins, DeFi tokens and other digital assets. In this way, you can protect your portfolio from strong price fluctuations on one asset, offsetting possible losses on certain assets with gains on others. Another key point is regular portfolio rebalancing, which includes revaluation of assets and their compliance with HODL's long-term strategy, as well as adaptation to current market conditions and changes in investment goals.

Do your own research (DYOR): Instead of relying on the advice of other traders, do your own research. Analyse the market, news and charts to make informed decisions based on your own assessment. Regularly updating your knowledge and analysis methods will also allow you to adapt to constantly changing market conditions and increase the likelihood of successful trades.

Improve your knowledge: Continuous learning is the key to trading success. Knowledge will help you reduce anxiety and avoid impulsive decisions. Read educational materials, attend conferences, take online courses such as Binance Academy, OKX Academy, Cryptology, educational course ‘Game-Changing Tech: Mastering Blockchain’ by WhiteBIT in partnership with FC Barcelona, etc. Apart from that, WhiteBIT recently launched a Halloween activity where users can overcome their cryptocurrency fears.

Learn from previous mistakes: Analyse all your past transactions, whether they were successful or not. Identify the mistakes you made to avoid them in the future. This will help improve your trading strategy and reduce the likelihood of succumbing to FOMO.

Communicate with other traders: Actively engage in communities of traders and share ideas and strategies with them, as well as learn from the experiences of others. Communicating with like-minded people will help reduce the feeling of isolation and pressure associated with FOMO.

Conclusion

In the world of cryptocurrencies, the allure of promising projects can be easily misleading. Shitcoins is a prime example of how a cryptocurrency that has no real value can become a trap for investors. And FOMO - the fear of losing - only increases the risk of making hasty decisions. It's important to remember that successful investments are not based on hype or emotions, but on careful analysis and a clear strategy. Research, analyse, and remain cautious. After all, in the world of cryptocurrencies, as in life, not all is golden that glitters.

Originally published at https://cryptoxtimes.com/investing-wisely-understanding-shitcoins-and-the-fomo-phenomenon/ on October 22, 2024