BTC price analysis using market sentiment tools

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Currently, it can be said quite clearly that BTC has confidently taken its niche in the financial world. – especially among risky assets – as the most convenient exchange-traded asset that is most often used by professional market participants for hedging purposes.

Unlike traditional active ingredients to which we have become accustomed for a long time since they have existed for many decades with us, BTC in my opinion, by its youth and freshness, is more subject to the human factor than other active ingredients. In other words, the effect of traders’ sentiments on BTC is much stronger. There are several ways to value BTC through market sentiment, which we’ll take a look at.

But first, let me remind you of the meaning of market sentiment.

Market sentiment is the general attitude of investors / traders towards the expected increase in prices in a particular market. This attitude combines many fundamental and technical factors, including price history, economic components, and local (national) and global events. The most popular metrics for analyzing market sentiment are the fear and greed index, social activity, Google trends, and others.

Analyze Bitcoin with Google Trends

The beauty of any graphic is to apply a method of technical analysis to it. If you go to the Google Trends dashboard and ask for “Bitcoin†with the global coverage settings for the past five years, a chart will open up, consisting mostly of people’s moods about BTC.

You can consult the table below.

Source: Google Trends

There are several bullets for analysis above the Google Trend chart shown. The 0 to 25 area can be seen as fear, uncertainty, and undervaluation that Bitcoin is expected to accumulate in because after a while a steady uptrend can begin.

Crossing the line with a value of 50 can be described as the fact that Bitcoin has recovered from the bottom and is ready to continue its strong growth. The 70-100 area can be characterized as overheating and excessive greed, indicating that the Bitcoin exchange rate will soon collapse.

Below are two graphs with Bitcoin on which you can visually check for corrections or significant drops in the rate around the dates when Google Trends was at its peak.

Source: TradingView

Source: TradingView

Also exciting is the fact that the rapid development of the NFT industry, which began in April 2021, has had a specific effect on BTC price action. Ironically, this phenomenon can be tracked through a Google NFT Trends chart and applied to the BTC price chart. For example, excessive social activity in the NFT industry, which was observed between August 29, 2021 and September 4, 2021, led Bitcoin to unexpectedly fall into bear clutches on September 7.

You can consult the table below.

Source: Google Trends

After the Bitcoin price collapse on September 7 of this year, the NFT marketplace “OpenSea” announced that its daily trading volume fell by 99%. OpenSea administrators also noted that in the total volume of transactions during the first half of September with the same period in August 2021, the drawdown was at least 50%. So, in any case, it will be interesting for us to observe the evolution of the relationship between Bitcoin and NFT.

Analyze Bitcoin with the Fear and Greed Index

I want to note the analysis in terms of the Fear and Greed Index as some people continue to be skeptical of its readings and state that there can always be much lower and can always be much higher . Let me disagree with their statements as a trader has to adhere to the trading concept of a particular indicator.

An area between 0 and 20 is considered fear and oversold, where Bitcoin should be accumulated. An area between 70 and 100 is considered greedy when caution is needed (i.e., start selling your coins). This method is more suitable for medium and long term investors.

You can consult the table below.

Source: Alternative.me

In terms of technical analysis, how Bitcoin has responded to readings of the Fear and Greed Index, you can check out below.

Source: TradingView

In summary, we can say without a doubt that these methods are of great value because the precision of their signals is relatively high. I would also add that analyzing Bitcoin using social activity and Google Trends generates valuable short term signals suitable for day traders.

In turn, the Fear and Greed Index is more suitable for swing traders and long term traders. Do not hesitate to develop and apply your methods of cryptocurrency analysis, taking into account the social activity of traders.

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Baro Virtual is a family team of enthusiasts who are genuinely passionate about blockchain (on-chain) data mining and the cryptocurrency industry in general. In addition, we focus on the analysis of financial markets, primarily using internal compression strategies, and on the study of politics, business and economics. Baro Virtual is one of the best authors in CryptoQuant. Additionally, Baro Virtual is a guest author of Bitcoin Magazine.

Featured Image: Shutterstock / Sergey Nivens