Bitcoin Investors Sink Into Fear, Time For Rebound?
Data shows that Bitcoin investors have been showing signs of fear as the price of the cryptocurrency has dropped below $27,000.
Bitcoin’s Social Dominance Spike Hints Market Fear
According to data from on-chain analytics firm Holy, BTC’s social dominance has increased recently. “Bitcoin social dominance” is an indicator that measures the percentage of total discussions involving the top 100 assets by market capitalization that mention BTC.
What this metric tells us is how current interest in BTC among investors compares to that of altcoins. Historically, high interest in altcoins (meaning BTC’s social dominance is low) has been a sign of greed in the market.
Typically, markets are more likely to move in opposition to broader market sentiment, the more sentiment leans in a specific direction. Thus, in times of greed, price corrections may become more likely.
When BTC social dominance is high, however, it is a sign that interest in BTC is currently high. Such market conditions can be linked to the presence of fear and therefore rebounds naturally become more likely to occur.
Now, here’s a graph that shows the trend in Bitcoin’s social dominance over the last few months:
The value of the metric seems to have been high in recent days | Source: Santiment on Twitter
In the chart above, Santiment changed the social dominance scale and made the 20% mark the “0” level. According to the analytics firm, this 20% mark serves as a kind of “health line” for the cryptocurrency, meaning it is the threshold below which altcoins get dangerous levels of focus.
From the chart, it is visible that the social dominance was negative (i.e. below this 20% health line level) during the first few months of the rally, which culminated with the price seeing a drop below the $20,000 level.
Once the price bounced back from these lows, however, Bitcoin’s social dominance skyrocketed into positive territory. Since then, the metric has stayed within that zone.
Recently, the indicator has been very close to falling into the greed zone, as can be seen on the chart. BTC-related discussions rose once again as the cryptocurrency price encountered more difficulties and dropped below the $27,000 level.
The timing of this peak likely means that the current bullish discussions are taking place due to rising fear among investors. It is not clear now how the market can proceed from here, but the emergence of fear at least implies that there is a higher likelihood of a local bottom being discovered soon, after which a recovery could occur.
At the time of writing, Bitcoin is trading around $26,900, up 2% over the last week.
Looks like the value of BTC has gone below the $27,000 level | Source: BTCUSD on TradingView
Featured Image from iStock.com, Charts from TradingView.com, Santiment.net