Market Sentiment as Summer Kicks Off: A Zoomed Out Look

It’s likely a surprise to nobody that sentiment has been drastically down among the crypto community over these past couple of months. Bitcoin’s price sits in the low“20k’s” after being at $68.7k in mid-November. The -69% price downswing is something that very few anticipated, and caused traders to show pretty tremendous levels of FUD (fear, uncertainty, and doubt) toward not just BTC, but the crypto sector in general.

As is typically the case in bear markets, sentiment typically stays negative (or progressively gets more negative) until either a major price breakout or sustained period of steady price growth occurs to bring back the optimism. Even though Bitcoin essentially hit its most recent $17.8k local bottom on June 18th, the crypto community is more or less treating the $20k+ level as the psychological support right now. If above this level, traders are at least somewhat optimistic of prices being able to recover back to late 2021 levels. If below, there is a higher level of fear and cryptocurrency is a viable trading market.

In short, a high level of fear is exactly what patient hodlers and bulls want to see during a long bear market. Through multiple analyses at Santiment, history has indicated that too much optimism related to key phrases like “buythedip” or “bottomisin” result in short-term solace, and long-term further price downswings.

Social dominance related to Bitcoin relative to other altcoin interest on social platforms, is also important to watch. Santiment defines social dominance as the percentage of discussion of one asset vs. the other top 100 market cap assets (based on Twitter, Telegram, Discord, and Reddit public forums). When discussions of BTC increase relative to the smaller market cap assets (altcoins), the social dominance rises. Typically, when the social dominance related to Bitcoin is above 20%, it’s indicative of the crypto crowd having a “healthy” outlook on cryptocurrencies in general.

An encouraging sign is the fact that Bitcoin’s social dominance is above 25% this week, indicating that a bit over one quarter of all discussions in crypto forums are related to BTC, rather than altcoins or stablecoins. For much of the past two years, we have seen this social dominance value well below 20% as the altcoin craze was in full swing for Terra, Solana, Cardano, and many others during their independent breakouts in 2020 and 2021.

This downtrend in altcoin discussion is related to the 80%+ reduction in many market caps since mid-November. And a lower interest in altcoins means higher interest in a

Bitcoin, which has been well documented to be the asset that the rest of the markets will hinge on.

Also watch the topics of discussion. Between COVID-19, the Russia-Ukraine conflict, and inflation-fed rate hikes, there have been a high amount of real-world related events that have correlated with, or even initiated, crypto market cap downswings.

Inflation and the FOMC-related rate hikes in the US have been the most relevant real-world topic in mid-June, with the Fed hiking interest rates yet again for another 0.75%. This comes after a previous 0.5% rate hike in May, and 0.25% rate hike in March. We saw severe spikes of worry related to this topic on June 9th, just as Bitcoin began its descent from $30k to $20k.

The perception of the cryptocurrency sector is very polarized right now, as we usually see during extended price retracements like we’re seeing currently. Shorter-term traders who didn’t enter into crypto until late 2021 or early 2022 are the ones conveying the most negativity, while longer term traders are sitting tight and waiting for this bearish cycle to be over with.

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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.