I do not believe either possibility represents the teaching of 1 John 4:18. The central thrust of the verse is rather simple:
You can have love for God or you fear (are frightened of) God; BUT not both! People who love God have nothing to fear in the judgement. People who fear God do so because they are not forgiven and so fear punishment.
Thus, true love for God drives out any fear we have of God.
This same idea is presented in Rev 6:15-17 where we read about the wicked at Jesus' return:
Then the kings of the earth, the nobles, the commanders, the rich, the
mighty, and every slave and free man hid in the caves and among the
rocks of the mountains. And they said to the mountains and the rocks,
“Fall on us and hide us from the face of the One seated on the throne,
and from the wrath of the Lamb. For the great day of Their wrath has
come, and who is able to withstand it?”
See also 2 Thess 2:8. Note the wicked actually ask (actually beg!) to be destroyed when they see God. By complete contrast, at the SAME event, the righteous' reaction is the opposite as recorded in Isa 25:9 -
And in that day it will be said, “Surely this is our God; we have
waited for Him, and He has saved us. This is the LORD for whom we have
waited. Let us rejoice and be glad in His salvation.”
Therefore, when the Lord returns, the wicked ask to be destroyed and the righteous are elated. This perfectly illustrates the difference between fear of God and love of God.
This principled love of God (1 John 4:8, 16) is to be imitated by all Christians (John 13:34, 35) and is motivated by God’s love for us (1 John 4:9, 10, 19-21, 2 Cor 5:14). Thus, love is quintessentially Christian (of Christ) and reached its zenith when God gave Jesus as the solution to the sin problem (2 Cor 5:14, Eph 2:4, 3:19, 5:2, John 3:16). Therefore, Christians should have as their primary focus their love of, and love to God (Matt 22:37, Deut 6:5), and secondarily love to fellow humans (Matt 22:39, Lev 19:18).
The fact that a person loves God and basks in the God's love for him/her means that there is no fear of punishment at all - see John 5:24, 25, 28, 29
Truly, truly, I tell you, whoever hears My word and believes Him who
sent Me has eternal life and will not come under judgment. Indeed, he
has crossed over from death to life. Truly, truly, I tell you, the
hour is coming and has now come when the dead will hear the voice of
the Son of God, and those who hear will live.
Do not be amazed at this, for the hour is coming when all who are in
their graves will hear His voice and come out—those who have done good
to the resurrection of life, and those who have done evil to the
resurrection of judgment.
More succinctly, 1 John 5:11, 12 puts it this way:
And this is that testimony: God has given us eternal life, and this
life is in His Son. Whoever has the Son has life; whoever does not
have the Son of God does not have life.