Investors are notoriously jumpy. Small news releases, slightly varied wording, or even minor geopolitical events can trigger massive sell-offs. This sentiment can carry over to Bitcoin as well.
However, these fear-based flights away from stock positions are often premature. A number of massive companies have proven that overreacting can cost investors money. While Bitcoin may be volatile, this information alone is not enough to determine its future.
Facebook, Tesla, and Netflix, Oh My!
A quick perusal of the yearly charts for Facebook (FB), Tesla (TSLA) and Netflix (NFLX) reveals a substantial drop in value. All three companies faced serious setbacks in 2019, only to emerge winners.
Facebook came under the gun in anti-trust legislation. Tesla saw some of the lowest sales points ever and seemed headed toward insolvency. Netflix was staring down the barrel of the new Disney+ release.
Each of the companies was sold off by investors in the negative news cycle. Nevertheless, the market overreacted, and each of the three is near all-time highs, or up well over 30%. Apparently, investor sentiment is no measure of true value.
Fear Factor and Bitcoin
The drastic sell-off and subsequent return of value reveals something important about traders. Often, fear can influence much of what happens over the course of short to mid-term trading. These major firms all saw such trading action, and Bitcoin can certainly expect the same.
Fear of loss is a powerful motivator to sell. The potential that hard-earned investments could lose substantial value can cause major sell-offs, particularly after bull runs. Investors want to take profit, protect value, and preserve capital.
On the other side, fear of missing out (FOMO) can motivate buyers to enter a space without fundamental reasons. Hope for dramatic gains, and the potential that an equity or coin will ‘moon,’ can cause investors to buy without thinking.
However, often, the news isn’t the best indicator. Facebook, Tesla, and Netflix were all massively oversold amid negative news. In the same way, Bitcoin often faces troubles without real market justification. The moral of the story is ‘buyer beware.’