Are Traders Putting Their Money Where Their Mouths Are?
The crypto community talks a big game quite often about their price predictions. Those who are proven correct retweet their own posts and use their new "Socrates" status to gain clout. Those who are incorrect quickly move on to a new subject, or sometimes even go so far as to delete their initial prediction.
Regardless, there is always the social prediction side of traders... and then the actual funding rate side. The latter is the side in which traders are actually placing real money down instead of just talking about what they're doing to (sometimes) manipulate their audience.
Looking at social data first, we're seeing a trend that you'll like to see if you're a crypto bull. Over the past 5 weeks, traders have gradually become less and less optimistic toward the top assets in crypto.
We have backtested years of data and have found that prices historically move the direction of the crowd's least expectation. When traders are showing more and more doubt, it increases the probability of continued price rises.
We can also get an up-to-date look of a comparison of keywords:
- Blue candles: Mentions of buy, buying, bought, bottom, bottomed, and bullish
- Red candles: Mentions of sell, selling, sold, top, topped, and bearish
Right now, we can see that there is a declining amount of BOTH bullish and bearish candles from the crowd. In fact, there are less participants engaging in discussion on Twitter, Discord, Telegram, and Reddit compared to the beginning of the year. This decline simply means the crowd doesn't know what to think. Generally, declining crowd interest even as prices rise usually means there is some disbelief going on.
Moving over to the funding rate side, this data available on Santiment is a great window into seeing whether traders are actually being authentic when they are buying and selling.
Currently, there is a slight bias toward longing. None of the top market cap assets that we are tracking show signs of a negative funding rate, when accounting for average rates across Binance, Bitmex, DyDx, and Deribit.
This is certainly interesting, as it's really the opposite of what we're seeing on social media, which has gradually become more bearish over the past month. The high longing ratios across many assets may be a reaction to Bitcoin's recent cross above $30k, which did at least temporarily renew some optimism in the crypto community.
We can zoom in on just Bitcoin's funding rate on Binance, the largest platform for perpetual contract rates. At the moment, traders are looking as long as they've consistently been over the past month. And with prices historically moving the opposite direction of funding rates, given enough time elapsing, this is a bit concerning.
So overall, it appears that the loudest voices in crypto have quieted down and are not putting out as much of a bullish narrative as they had been in previous months. But when it comes to where traders are actually placing their bets, away from the discussion forums, it looks like there is a bit of a longing bias.
In this situation, there usually needs to be some event to quiet down the FOMO on the funding rate side. Whether it's a piece of news or a mild price drop, we will have to wait and see. Q1 was a fantastic ride for crypto bulls, and we will have to watch and see how the social and funding rate side of things will determine whether Q2 will be a continuation with about a year until Bitcoin's highly anticipated halving.
Disclaimer: The opinions expressed in the post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.
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