Market Mood

Famed equities investor Warren Buffett has always stated, “Be fearful when others are greedy, and greedy when others are fearful.” 

 

This type of sentiment holds very true for Bitcoin especially, as Bitcoin has historically been heavily impacted by elements of fear and greed.

 

Gauging the market’s mood can be done in a number of ways, from looking at levels of the positivity and negativity of Bitcoin, looking at google trends, and manually gauging how the cryptocurrency community is feeling.

 

When gauging the public’s sentiment, there is one rule that you must never stray from: Only Trade Extremes. Basically, crowd sentiment gives us a lot of data — but you should only make a trade based on that data if the sentiment values you are tracking are at extreme levels. A slight indication that the crowd is feeling one way or another is meaningless, you need to look for extreme polarization.

 

This section will cover how to do each, and how to fit it into a model that can work alongside your trading plan. 

 

For gauging the market’s sentiment, use the free tool here from the website Datapool. A video I posted to youtube can also help with this strategy. 

 

Essentially, Datapool tells us how many Twitter users are positive or negative about Bitcoin. 

 

 

Bitcoin’s price is in orange and the green/red histogram tells us how positive or negative Twitter is on Bitcoin. Typically, extreme positivity leads to market decline and extreme negativity leads to a market rise. 

 

Notice how bullish/positive the Twitter community was around April 21st on the chart above, price rapidly fell due to a clear oversaturation of buyers. Moreover, the consistent positivity on the left side of the chart likely forecasted the steady decline that ensued. 

 

The best period to use on the indicator above is the 3-month/30D for medium term analysis and the 7D/1D for shorter-term analysis. 

 

Google Searches for Bitcoin 

 

Typically, when many people start searching Bitcoin online, it’s either because of a dramatic rise or fall in price. 

 

When a dramatic rise in price occurs, and Bitcoin garners interest this can be a sign of a local market top. This occurs due to oversaturation of buyers in the market. 

 

Essentially, if everyone has been made aware that Bitcoin is surging that can lead to a situation where anyone who wanted to buy has already bought. 

 

The reverse can be true as well.  If everyone has been made aware that Bitcoin is falling, this can lead to a situation where anyone who wanted to sell has likely already sold. 

 

This is why it’s imperative to only pay attention when google searches spikes to incredibly high relative values. 

 

You can find the raw google trends value here and the free tool used below by clicking here

 

 

On the chart above, green/positive denotes a time when more google searches for Bitcoin were occurring and red/negative denotes a time when less google searches for Bitcoin were occurring. The period used and recommended is the 3-month. 

 

On the far left of the chart (Jan 22), a strong downtrend had just occurred. Google searches for Bitcoin soared as many were talking about the downtrend. After this occurred, price rose as the sellers had oversaturated the market. 

 

The inverse occurred in early to mid February, when Bitcoin was performing well in an uptrend. The surge in interest led to a prompt fall in price. 

 

It’s incredibly important that you pay most of your attention to when this indicator is at an extreme positive. An extreme negative on google trends indicates that very few people relatively-speaking are talking about Bitcoin, this can be somewhat important to look at as well.

 

A string of negative google trends as Bitcoin is either trending higher or lower tends to lead more often than not to a continuation of that trend. This occurs due to the fact that negative google trends’ values indicate that not many people are emotionally reacting at the current price. 

 

A slow-moving downtrend with low relative values of google searches for Bitcoin can be a strong sign for price to fall even further. Likewise with an uptrend. 

 

Crowd Forecasts of Bitcoin’s Price

 

For gauging more long-term sentiment, take a look at Coinmarketcap’s price estimation of Bitcoin tab. In order to view this, you need to create a free account and sign in. Use the tool by clicking here.

This shows you what traders believe the future price of Bitcoin will be in the coming months. As with most types of sentiment, when many traders believe markets will be higher — markets tend to fall. When many traders believe markets will fall to lower prices in the future, markets tend to trade higher.

 

From the screenshot above, you can see that traders are quite bullish in the short-term (August 2022 and September 2022) and then traders have gotten progressively more bearish in later months such as December 2022 and January 2023. This makes me bearish in the coming months but bullish in the later months of 2022.

 

Moreover, Coinmarketcap also shows how accurate the crowd has been in the last few months. As shown below, you can see that the average forecast of price is almost entirely completely different than what the actual price is at the time of the end of of the forecast.

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