Data shows that Bitcoin sentiment had turned quite bearish just before the asset’s price rose again from the $27,100 level.
Bitcoin is recovering shortly after FUD takes over the market
This is evident from data from the on-chain analytics company Sanitation, investors showed great fear around the time of the local bottom over the past day. The relevant indicator here is “social volume,” which measures the total number of text documents on social media that mention a particular topic, such as cryptocurrency or Bitcoin.
These social media text documents include various sources such as Reddit, Twitter, Telegram, and other forums. Social volume only tracks how many such documents mention the term at least once. So this means that even if a post contains the keyword multiple times, the social volume contribution will still be only one unit.
The importance of social volume is that it tells us about the amount of discussion certain topics are currently getting from social media participants.
In the context of the current topic, social media is used to know the degree of bearish and bullish sentiment in the market. Here is a chart showing the trend in these social volumes for Bitcoin over the past week:
Looks like the bearish sentiment has seen a sharp surge recently | Source: Santiment on Twitter
To separate social volume from discussions implying a bullish mindset, terms like “buy, bottom, bullish” have been chosen, while keywords like “sell, top, bearish” have been selected to indicate bearish sentiment.
As shown in the chart above, Bitcoin’s social volume for bearish sentiment appears to have seen a major spike over the past day. This rise in the indicator came after BTC fell from over USD 28,000 to around USD 27,100.
This suggests that the BTC investors had become very scared during this panic sell-off. A similar level of bearish sentiment was observed just a few days ago, as the chart shows.
The turnaround in market mindset back then was also the result of a decline (this time from $29,000 to the low of $27,000), and interestingly, it coincided with the local bottom in the price.
The spike this time also coincided with the possible local bottoming at $27,100 as the price of the cryptocurrency has recovered a little bit since then.
Historically, when the market held an opinion that was too unbalanced in a certain direction, the price tended to move in the opposite direction to this opinion of the masses. This has generally made a local top more likely in times when there has been a lot of greed in the market.
Of course, the same also applies to local bottoms, as these are usually created when FUD has taken over the heads of the investors. The recent spike appears to have been an example of this pattern, and so far it seems the latest bearish sentiment spike could be the same.
BTC price
At the time of writing, Bitcoin is trading around $27,500, down 5% over the past week.
BTC seems to have been moving sideways in the last few days | Source: BTCUSD on TradingView
Featured image by Maxim Hopman on Unsplash.com, charts from TradingView.com, Santiment.net