What is market sentiment? This is a term that takes into account the feelings and thoughts of investors regarding a certain asset. Sentiment does not always impact the asset price. However, this factor might be very important, especially in such a volatile financial market as a crypto market.
Cryptocurrencies are often surrounded by hype, which is one of the most determining aspects of asset sentiment. To benefit from it, you need to take some time to conduct efficient research and try to take advantage of its results to forecast further price fluctuations.
The characteristics of the concept in the crypto context
As you might know, the rates of cryptocurrencies are determined by such important factors as supply and demand. These factors might depend on different circumstances, such as the opinions of influential people or the reputation of a company on social networks.
The analysis of the market sentiment can be very helpful for crypto traders who follow short-term trading strategies. This and some other practices applied when trading cryptocurrencies help to determine changes and fluctuations within a short period.
Explanation of the concept
The value of any crypto asset might depend on the collective view of participants. This is what we call market sentiment. This concept is common for all sectors but its impact on cryptocurrencies is especially strong.
Even though, no one can guarantee that productive market sentiment will bring financial gains to crypto holders and speculators. This highly depends on the industry conditions, context, and the asset itself.
Nonetheless, you still shouldn’t ignore market sentiment when dealing with cryptocurrencies. This might be valuable insight regarding the upcoming trends. So, we recommend conducting both fundamental and market sentiment analyses to make the most.
Meme coins, such as Dogecoin and Shiba Inu, are the best examples of how crypto market sentiment really works. Read more about these projects and you’ll find out that many people invested money just because of hype and unique concept. These coins were widely discussed by celebrities, which increased both demand and supply for the asset. Naturally, these led to unexpected upward price movements. These changes wouldn’t be as surprising for you if you paid attention to market sentiment.
Market sentiment indicators
Market sentiment isn’t just about announcements and publications on social media. Experts have devised sustainable tools that aid in determining whether you should go bullish or bearish, depending on market sentiment. Of course, you shouldn’t just rely on these tools and neglect your own research. These are just useful instruments that can provide you with a more objective view.
The majority of such indicators are dedicated to the biggest cryptocurrencies – Bitcoin and Ethereum. They help to assess the prospects of upward or downward trends of different cryptocurrencies. Let’s take a look at the most frequently utilized instruments and try to find out how they can help you trade cryptocurrencies more efficiently.
Technical analysis is one of the most important methods when trading in any financial market. When you trade cryptocurrencies, technical analysis helps to predict the future prices of your asset. This prediction is based on previous performances of the coin. Technical analysis might not always work as efficiently as you need. However, it’s still better than relying on your intuition.
A good fundamental analysis is what helps to assess a real value of a crypto asset. How is this achieved? When conducting fundamental analysis, a trader should pay attention to the different characteristics of the crypto project. This includes the analysis of the reputation of the team behind the project, research on special technologies implemented, case studies, the peculiarities of the blockchain, and so on.
Fear & Greed Index
Initially, the fear and greed index was used by stock traders. This indicator is expressed in a numerical value ranging from 0 to 100. When there’s a 0 index, it means the sentiment is in a state of extreme fear, while the 10o index means that there is a state of extreme greed. This index is applied to see whether investors feel confident about the asset or not.
In the cryptocurrency market, there is the Bitcoin fear and greed index. It has the same function as the indicator applied when trading stocks. In the case of BTC, this index assesses price fluctuations, market momentum, social media, surveys, Bitcoin dominance, and Google Trends.
Bull & Bear Index
Last but not least, we need to specify one more popular Bitcoin sentiment indicator, which is called the bull and bear index. This tool is based on AI technology. Its main function is to assess crowd psychology, based on the information from the media and 93 sentiments. The 0 index means that the market is following bearish trends, while 1 detects that the conditions are extremely bullish.