What Is Crypto Market Sentiment and How Does It Work?

If you are an experienced trader or investor, you probably already know what market sentiment is and how it works. But if you are new to this world or need a refresher, you are in the right place!

Market sentiment is a fundamental concept for understanding the behavior of financial markets and can provide valuable information on future trends. In our comprehensive guide, we will explore this concept in detail, from basic definitions to practical applications.

  • The sentiment in the cryptocurrency market
  • Why is it so important to analyze it?
  • Sentiment analysis
    • Bear VS Bull Market, what does it mean?
    • How do you analyze sentiment?
    • The Indicators
  • Our solution: Sentyment AI
  • Conclusions

Market seniment in the cryptocurrency market

Market sentyment is investors’ overall and prevailing attitude and mood toward the market. 

The concept exists in all financial markets, including cryptocurrencies, and has the power to influence market cycles.

In the case of cryptocurrencies, market sentiment can be determined by a wide range of factors, including economic and political news, changes in government regulation, technological developments, and so on. However, it can also be influenced by less tangible factors, such as the emotions and individual perceptions of market participants.

Market sentiment can be either positive or negative. If it is positive, investors and traders are generally optimistic about the prospects of a particular asset or market and are consequently more inclined to invest or hold their positions. On the other hand, if the sentiment is negative, they are generally more likely to sell or avoid the asset or market in question.

Why is it so important to analyze it?

Just like any other asset, the price of a cryptocurrency is determined by the supply and demand. These market forces can change due to various reasons, including public opinion, the introduction of new regulations, or technological innovations.

Many traders and investors analyze market sentiment to obtain in-depth information about market demand and thus predict the short- and medium-term potential of a crypto asset.

However, it is important to emphasize that sentiment does not always take into account the fundamentals of a project or financial asset. Market sentiment analysis is, in fact, an essential part of many trading strategies but should always be combined with other information such as technical or fundamental analysis.

Fundamental analysis and technical analysis are two essential branches of analysis: only by analyzing the market and its components, it’s possible to make valuable investments and trading.

Technical analysis focuses on an asset’s historical market performance: by examining price over time and trading volume over time, you can get a sense of how the market sees the asset. 

Fundamental analysis, on the other hand, is more of a big-picture approach. It incorporates information like a cryptocurrency’s financials, user community, and potential real-world applications. 

Both are valuable ways of understanding an investment, and can be applied to everything from stocks and bonds to, of course, cryptocurrency. And they can both help you build a trading strategy and identify when you want to buy or sell a particular asset.

By combing fundamental, technical and sentiment analysis, we can therefore:

  • Have a clearer picture of the price trend in the short and medium term;
  • Develop greater control over our emotional state;
  • Discover new potentially profitable opportunities.

Sentiment Analysis

Sentiment Analysis  involves collecting data from various sources such as social media platforms, news articles, forums, and blogs to gain insights into how people feel about an asset. These emotions do not always reflect the fundamentals of an asset or project but can significantly influence the price.

By monitoring market dynamics through the overall attitude of participants, it is possible to understand the amount of hype or fear surrounding a specific cryptocurrency.

For example, market sentiment analysis can help understand if FOMO makes sense or it’s just the result of herd instinct. FOMO, which stands for Fear Of Missing Out, refers to “the fear of missing an event and being left out.” In the context of trading and cryptocurrencies, the term FOMO is used to describe the anxiety of missing out on a market movement, usually bullish, which often leads to irrational operations or late purchases.

Bear VS Bull Market

At this point in the guide, it is worth delving deeper into two expressions that you have surely heard at least once in your experience in the crypto universe: Bull and Bear Market. Let’s see together what they mean and why they are important in relation to market sentiment.

All financial markets, regardless of type, are characterized by a cyclical trend, which tends to repeat over time. This is due to the predictability of human behavior and the cyclicality of its emotions-actions.

However, each market and context has different rhythms: the economic cycle of an entire country can last up to an average of 20 years, and the cycle of a small market such as the crypto one lasts from 1 to 4 years.

There are notoriously two major phases that make up the market cycle: bull market and bear market. The difference between the two is their trend, technically called market trend, which can be bullish, bearish, or sideways.

Here are more in-depth definitions of the two trends.

Bull Market refers to a phase of the market cycle characterized by a positive trend in market prices, with new highs and all-time highs. It is also important to note that a bull market does not mean that prices do not fall or oscillate. For this reason, it is more reasonable to consider bull markets over longer time intervals. In this sense, bull markets will include periods of decline or consolidation without invalidating the general trend.

A Bear Market can be described as a period characterized by a decline in prices in a financial market. However, bear markets can also present phases of euphoria. In these periods, prices increase at a high speed, correlations are stronger than usual, and most assets increase in parallel. Usually, investors are “bearish” in a bear market, meaning they expect prices to fall. This also means that market sentiment is generally quite negative.

Because cyclicality stems from people’s expectations and behavior, psychology and market sentiment are very important to understanding the meaning of bear and bull markets.

How to analyze sentiment?

To understand the market sentiment, you need to collect the views, ideas, and opinions of market participants, and yes, it’s not easy to do!

Social media analysis

The analysis of social media channels can provide an idea of market sentiment. For example, if there are many positive discussions about a specific cryptocurrency, this may indicate that there is a good expectation of growth.

Trading volume analysis

Trading volume analysis can be used to determine if many people are buying or selling a particular cryptocurrency. An increase in trading volume may indicate an increase in interest and positive market sentiment.

Price Analysis

Price analysis can provide insights into market sentiment trends. For example, if the price of a cryptocurrency is consistently increasing, this may indicate that the market sentiment is positive. Conversely, if the price is consistently decreasing, this may indicate that the sentiment is negative.

News Analysis

News can strongly influence market sentiment. If there is positive news about a cryptocurrency, such as the addition of a new feature or an agreement with a large company, this may positively affect market sentiment. Conversely, if there is negative news, such as a security breach, this may negatively affect sentiment.

Market Capitalization Analysis

The market capitalization of a cryptocurrency is its total value in the market. Analysis of market capitalization can provide an idea of market sentiment: if it is consistently increasing, this may indicate that the market sentiment is positive.

To start conducting sentiment analysis, we recommend beginning with these four steps:

  • Monitor social media, preferably with the help of data collection software.
  • Stay updated on the latest news through industry websites and blogs.
  • Check market sentiment indicators and price signals on CoinMarketCap.
  • Participate in online communities, primarily on Discord and Telegram. Be careful not to trust anyone: make sure to do your own research before taking risks.

Market Sentiment Indicators

Investors can examine market sentiment indicators to get an idea of the bullish or bearish opinion of a market or asset. Indicators represent these sentiments graphically or with some type of scale.

Most market sentiment indicators are focused on Bitcoin (BTC), but it is also possible to identify Ethereum (ETH) sentiment indicators.

Bitcoin’s Fear & Greed Index is perhaps the most famous indicator. The index shows the fear or greed of the Bitcoin market on a scale from zero to 100, analyzing five different sources of information: volatility, market volume, social media, dominance, and trends.

These tools can be part of the kit for analyzing sentiment, but one should not rely solely on them. It is advisable, in fact, to use multiple indicators to obtain a more balanced view of the market.

Our Solution: Sentyment AI

Would you like to manage your cryptocurrency trading and investment decisions better with sentiment analysis but you have no idea where to start? Sentyment AI is probably the ally you’ve been looking for.

Sentyment AI is a complete platform for automated cryptocurrency portfolio management, able to automatically analyze the market and provide advice on the right time to buy, sell, or modify the composition of your wallet without the need for human intervention.

The operation is made possible by the integrated analysis software, developed to monitor the market and know in advance when it will be the best time to buy or sell.

Swaggy’s users can enjoy its benefits by adding it to their services right away, thus obtaining advice elaborated by dedicated software regarding the market orientation and the most convenient choices to adopt to maximize the value of their electronic wallet.

For further insights, read our article


With a better understanding of market sentiment, it is more likely that you will make better trading or investment decisions.

However, do not forget that it is good practice to make decisions using a combination of all available information and that market sentiment analysis tends to offer better results with practice and experience.

If you do not have time to waste and do not want to risk making rookie mistakes, you can always start now with Sentyment AI on Swaggy!

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