What Is Crypto Sentiment And How To Use It?

Have you ever wondered what’s genuinely behind cryptocurrencies’ many ups and downs? Since they don’t have any regulating bodies interfering with the price, their prices fluctuate, sometimes wildly.

A myriad of factors contribute to this: global news, crises, hype, and of course, supply and demand. But crypto, as a social phenomenon, can also be analyzed through sentiment.

A Crash Course on Crypto Sentiment

The crypto sentiment is a tricky beast to tame. For instance, if you want to assess casino bonuses, you can simply visit website to find out what are the best deals for you. It’s as simple as that. Cryptocurrency sentiment, unfortunately, isn’t that way. 

Gone are the days when technical and fundamental analysis were the most critical ways to determine whether something was worth investing in. In the crypto world, sentiment needs to be factored in.

This is because sentiment is the overall attitude regarding the market. In other words, investor psychology, which in turn reflects on the price trends. However, how do you measure the psychology of people investing?

One of the most significant indicators is social media. You’ve probably met and perhaps even partaken in some social media frenzy surrounding coins such as Dogecoin. A single Musk tweet was all that it took to raise its price exponentially.

How do you know if a cryptocurrency is enticing for investors, thus, potentially a good deal? Let’s take a look at how sentiment analysis is performed.

Signals Are Everywhere

If you want to conduct proper sentiment analysis, you need to collect data. Lots of it. You need to check social media pages, join Discord, Telegram, Reddit and especially official sources of information for your target project.

Another central point is to be on the lookout for industry news from well-known sources, such as CoinDesk, and others. Using Google Trends can also be helpful, as you can analyze whether there are many inquiries about a specific crypto project.

It’s also critical to dig deep. Sometimes the best information is hidden in plain sight. For example, when one Bitcoin was about $32,000, Elon Musk added the hashtag #Bitcoin to his Twitter bio. The result? It rose to $38,000 in few hours.

If you manage to collect all this information, you need to label it based on emotional tone, then train a machine learning model with the dataset and check if it’s accurate. If you’re not tech-savvy, there are paid tools for such purposes. 

It’s a lot of work, but doing so will prepare you. If you prefer a more digested analysis, there are sentiment indicators that go from 0 to 100. The higher the number, the more positive people’s attitudes are towards that specific cryptocurrency.

Remember, It’s Just a Tool

Don’t forget sentiment analysis is just a way to understand a specific crypto market, and it isn’t bulletproof. Sometimes sentiment is very positive (Dogecoin anyone?), and a sudden crash comes.

Still, knowledge is power, so the more, the better. However, remember that other factors can influence prices, such as:

• Mining difficulty
• Fiat money exchange rates
• Macroeconomic factors
• Market trends
• Supply and demand
• Regulations

While all of this also influences public sentiment, each is worthy of an in-depth investigation. And don’t forget there’s a lot of fake information thanks to bots and individuals with specific agendas, so you need to be careful in discerning what’s true from what isn’t.

Sentiment analysis is daunting, but it won’t just prepare you for better investment decisions; it’s also an invaluable tool for understanding the market and how people think