Buying Crypto or Buying Hype: What FOMO Doesn’t Tell You

 

What is crypto? Famously known ‘Crypto Bros’ say it’s the beginning of a democratic future for currency, while others call it a pyramid scheme, let’s dive in and find out who is right. The most famous cryptocurrency is Bitcoin, the gold standard of crypto, the market moves with Bitcoin and since its introduction thousands of more coins have spawned, whether coins with a true purpose (Solana) or ‘Meme’ coins (Dogecoin).

Essentially, crypto can be called an asset, currency or scam - Depending on who you are and how you define cryptocurrency. Regardless of its faults, crypto has genuine benefits you don’t get in other markets: 24/7 trading and decentralisation. Since there is no fundamental backing to these coins, volatility is extreme, creating a new generation of overnight millionaires who’ve come from owning coins that have suddenly shot up in popularity. Whilst this shows how profitable crypto can be, it’s important to highlight the losses are just as vast.

FOMO (‘Fear of missing out’) contributes to these significant changes, people simply don’t want to miss the wave of ‘quick and easy’ money, the sensation creates a blur for people, they don’t understand what they are buying and the risk behind it. In this blog, we will explore this more and discover how it links to some key economic concepts - Asymmetric information and adverse selection.

Asymmetric information: the silent killer in crypto.

The crypto market is pure chaos-prices soar overnight, influencers hype up the ‘next big thing’, and retail investors chase quick riches. But behind the excitement lies a harsh truth: crypto is rife with asymmetric information, where insiders like developers and early investors hold far more knowledge while everyday traders are left guessing. Insiders know the technical roadmaps, tokenomics, and team dynamics. They see trouble coming long before the public does. Meanwhile, retail investors rely on Twitter (X) threads, Reddit posts, and YouTube influencers hyping up the next ‘1000x gem’. Social media becomes an echo chamber where speculation disguises as research. Someone shouts, ‘This coin is going to the moon!’, and suddenly it feels like a fact. The anchoring effect kicks in-a cognitive bias that makes traders fixate on past prices, assuming a coin will return to its peak, even without real evidence. Add FOMO to this, and rationality takes a back seat.

 

Without regulation, crypto projects can exaggerate partnerships, hide flaws, even pull exit scams. Many craft hype-driven narratives to manipulate investors. As (Theseus 2023, Nguyen, v., 2021) notes, “Smart social media posters know how to target self-conscious readers, telling them they’re missing out”. And just like that, people buy in - not because of fundamentals, but because they don't want to be left behind.

 

The result? Insiders cash out while uninformed traders are left holding worthless tokens. The hype cycle repeats, creating boom-and-bust patterns that wipe out fortunes overnight. Until crypto embraces stronger audits, clearer disclosures and better investment education, it’ll remain a playground for the few-while essentially keeping many gambling in the dark.

 

The Lemon problem:

The cryptocurrency market is also a prime example of Akerlof's "Lemon Problem," where bad projects (lemons) dominate because they take advantage of asymmetric information-which is the difference between what insiders know and what retail investors don't. In his 1970 paper, economist George Akerlof explained how markets with hidden information allow low-quality products (lemons) to compete with high-quality ones (peaches). This occurs in cryptocurrency because scam projects, meme coins, and pump-and-dump schemes aggressively market themselves, generating hype that blinds investors to their lack of true value. Meanwhile, solid projects with genuine value struggle to gain traction because they don't depend on viral marketing.

 

For example, Shiba Inu (SHIB) and Chainlink (LINK). SHIB exploded because of meme-driven FOMO, whereas LINK, even though being a major blockchain infrastructure project, remains undervalued in comparison. What's the problem? Most investors lack the skills and patience to distinguish between hype and quality. Just as buyers in Akerlof's used car market assume every car is a lemon, crypto investors frequently believe every project is a potential jackpot, resulting in a cycle in which hype wins, quality loses, and many retail investors are left with worthless tokens.

 

How to kick FOMO to the curb

So how do you avoid getting tricked by hype coins or falling into the next crypto scam? The answer is simple: Do Your Own Research. This means you will need to constantly check about the news and latest updates about the product to overcome the possible impact of asymmetric information and adverse selection. Check if the project has a clear plan (a roadmap), whether the team is public and experienced, and whether the code has been audited by independent experts. These are just some ways that research could mitigate the problem. Additionally according to Economics Nobel Laureate Michael Spence “It is not difficult to see that a signal will not effectively distinguish one applicant from another, unless the costs of signalling are negatively correlated with productive capability” (Spence, 1973)This theory is applied in the job market but in crypto terms, that means only high-quality projects will invest in costly, credible signals—like audits or transparency—because they stand to gain from long-term trust. At the same time, investors need to watch out for rug pulls - in the cryptocurrency world where developers abandon a project after raising assets, leaving participants with worthless tokens (Coinbase, n.d.). In a risky market space like crypto the best defence is knowing what you are looking for by ignoring the hype and trusting the signals in the market.

Final thoughts:

So, where does this leave you? We have discussed the dangers in the crypto market with reference to economic concepts like adverse selection, the lemon problem and asymmetric information. While these are important, it is still important to say crypto can be a valid market to enter. In the end, success in crypto depends less on chasing the hype and more on recognising the signals that matter.

 

References:

Park, H.W. and Lee, Y., 2019. How are Twitter activities related to top cryptocurrencies' performance? Evidence from social media network and sentiment analysis. Drustvena Istrazivanja, 28(3), pp.435–460: https://www.proquest.com/openview/9e845435a272d5a1130c527414b7ea32/1?cbl=756

Nguyen, V., 2021. The impact of Twitter user sentiment on Bitcoin pricing value. Bachelor's thesis. LAB University of Applied Sciences. Available at: https://www.theseus.fi/handle/10024/510978

Akerlof, G.A., 1970. The Market for "Lemons": Quality Uncertainty and the Market Mechanism. The Quarterly Journal of Economics, 84(3), pp.488–500. Available at: https://www.matetam.com/sites/default/files/themarketforlemons.pdf

Spence, M. (1973). 'Job Market Signaling'. The Quarterly Journal of Economics, 87(3), pp. 355–374. Available at: https://frontofficesports.com/wp-content/uploads/2018/01/spence-1.pdf

Liu, X., Cui, X., and Wang, Y., 2023. 'Fear of missing out and market stability: A networked minority game analysis'. Physica A: Statistical Mechanics and its Applications, 620, 128824. https://www.sciencedirect.com/science/article/pii/S0378437123009755

Spence, M. (1973) 'Job Market Signaling'. Available at: https://frontofficesports.com/wp-content/uploads/2018/01/spence-1.pdf (Accessed: 31 March 2025).

Coinbase (n.d.) 'What is a rug pull and how to avoid it?' Available at: https://www.coinbase.com/en-gb/learn/tips-and-tutorials/what-is-a-rug-pull-and-how-to-avoid-it (Accessed: 31 March 2025).