In recent years, the world of cryptocurrencies has experienced tremendous growth in popularity and awareness. More…
The crypto market sentiment takes into consideration how crypto investors or traders feel toward a crypto asset.
Analysis of this aspect in the cryptocurrency ecosystem is useful in forecasting price movements. Tracking the attitudes of market users towards a digital currency helps one understand why there is a huge hype or skepticism towards that digital asset.
Let’s learn more about crypto market sentiment and how it plays a role in the prices of cryptocurrencies.
Crypto Market Sentiment Defined
Market sentiment, whether in the crypto or traditional financial markets, refers to the shared feeling of investors and traders about an asset. This concept exists in all kinds of financial markets.
Even though each participant has his own opinion about the market, the collective always influences how the market moves. When they feel collectively optimistic, it indicates a bullish market. However, when they collectively feel pessimistic, it indicates a bearish market.
The bull and bear conditions are what drive the prices up or down. One of the most popular examples is Elon Musk’s role in hyping up Dogecoin. When he tweeted about Dogecoin, people immediately flocked to buy DOGE since they felt positive about its price after Musk’s tweet.
Why Does it Matter?
Remember how DYOR is always emphasized for new investors or traders? Researching people’s feelings about the crypto market is crucial before deciding to trade or invest. You need to have accurate and trustworthy information so that you can conduct an analysis. Analyzing the collective emotions of the market participants prevents you from trading against the majority or getting carried away by the hype.
In a nutshell, market sentiment provides insights about these three aspects:
First, you will get a better understanding of the price actions. It will give you clues about both the short-term and mid-term prices.
Second, there are moments that traders and investors allow their emotions to rule over them. If you learn about the collective attitudes towards crypto assets, you can avoid emotional trading.
Lastly, a good grasp of market trends helps you discover venues for earning huge profits.
Two kinds of Crypto Market Sentiment Analysis
There are two ways that new investors can evaluate crypto market trends and how the majority feel about it.
If you want an understanding of possible short-term prices, technical analysis may be the best option. It is the method of trying to predict forthcoming prices through previous data. Experts about market movements believe that trades have patterns and are bound to repeat the sequence.
Fundamental analysis is useful if you want to look into the reliability and long-term potential of a specific crypto coin. It aims to assess the cryptocurrency’s intrinsic value. It also evaluates the developers of the crypto project, its use cases, how people can adopt it in real-life, and the performance of its blockchain.
Market Sentiment Indicators
In analyzing crypto market sentiment, you cannot rely on one data source alone. You need to consider different factors before you can come up with a reliable analysis.
Bitcoin Fear and Greed Index
The Bitcoin Fear and Greed Index is a very popular tool in measuring the global attitude towards cryptocurrencies. It measures fear and greed on a scale that goes from 0 to 100. Zero means extreme fear and 100 reflects extreme greed.
The crypto fear and index analyzes information from six data sources: volatility, market momentum, social media, surveys, Bitcoin dominance, and Google Trends.
Bull and Bear Index
Augmento’s Bull and Bear Index also analyzes sentiment but it focuses on social media. It is an artificial intelligence software that evaluates the trending topics and attitudes of platform users in Twitter, Bitcointalk, and Reddit.
Developers of this index also backtest the available data for that current year. If the score is zero, it means extremely bearish. But, if it scores 100 then the sentiment is extremely bullish.
All in all, conducting a crypto market sentiment analysis is extremely helpful for those who are just about to begin their investing journey in cryptocurrencies and those who want to improve their investing strategies. However, it is important to take time in conducting the analysis and doing deep research so that one fully understands the implications of the evaluation.
Aside from monitoring the crypto fear and greed index, people who are new to the cryptocurrency space should also be aware of bitcoin price manipulation, market momentum volume, and most especially, market volatility. Being aware of these factors will help you invest and trade diligently.