Tame the FOMO game

As we've highlighted in the previous post, understanding the level of FOMO in the market is crucial for determining the appropriate trading strategy. Let's examine each of the mentioned indicators and their related metrics to gauge the current market sentiment.

1. A significant increase in retail accumulations
Monitor the number of retail investors entering the market and increasing their positions in various cryptocurrencies. This can be done by analyzing on-chain data, such as the number of new addresses and the distribution of token holdings among smaller investors.
An example below, UNI small holders back in the 2021 (when the last top was built):

price (green) and the behaviour of two groups: 1-100 tokens (orange), 100-1000 tokens (dark blue)

2. A decrease in stablecoin holdings.

Observing the stablecoin balances of specific investor groups, such as "(baby) sharks" holding between $10,000 and $1,000,000 in stablecoins, can provide valuable insights into market sentiment and potential FOMO. In a growing market, a decrease in their stablecoin holdings may indicate that these investors are moving their funds into cryptocurrencies, signaling increased risk appetite.

Based on the behavior analytics approach, as long as "baby sharks" continue to accumulate stablecoins, it could be considered relatively safe (as safe as investing can be) to bet on the market's continued growth. However, it's important to note that this pattern may not be applicable in a falling market, as investor behavior and sentiment can differ significantly during market downturns.

Example below, it shows the behaviour of this group back in 2021:

BTC price (green), sharks behavior shown in USDT and USDC

3. A spike (with subsequent decline) in general network activities.
Track network activity, such as transaction volume, active addresses and the new addresses, to identify sudden increases followed by declines. This pattern may suggest that FOMO-driven market activity is subsiding.

As an example see these metrics for DOGE back in 2021 below:

Intraday network actiivty (red), DOGE price (green)
transaction volumes on-chain (dark braun), price (green)

4. Increased funding rates
Monitoring funding rates on perpetual futures contracts for BTC and ETH across various exchanges can provide valuable insights into market sentiment and potential FOMO. Higher funding rates typically indicate increased demand for long positions, suggesting that market participants are more bullish and possibly experiencing FOMO.

BTC and ETH are the two largest cryptocurrencies by market capitalization, and their funding rates often serve as a proxy for the overall market sentiment. By keeping a close eye on these rates, you can gain a better understanding of the current market dynamics and make more informed trading decisions.

Below are the examples for BTC funding rates back in 2021 and now.

combined funding rates (blue), BTC price (green) in 2021
combined funding rates (blue), BTC price (green) now (as of moment of writing)

5. A positive consensus (excitement) among video (YouTube) "influencers".

Monitoring the sentiment expressed by popular cryptocurrency influencers on platforms like YouTube can indeed provide valuable insights into market sentiment and potential FOMO among retail investors. A widespread positive consensus among these influencers may indicate growing optimism and FOMO in the market.

From our list the last snapshot of their sentiment is pretty bullish, if even not yet extreme. Please note that this list is not exhaustive, and you can update it according to your preferences:

sentiment of the selected 10 youtube "influencers" on 13.04.2023

Remember to approach the opinions of influencers with a (very) critical mindset, as their views may be biased or influenced by their own investments. It's essential to conduct your own research and consider a comprehensive set of metrics mentioned in this and the previous post, before making any investment decisions.

The final note.

By analyzing the mentioned metrics, investors can gain a better understanding of the current market sentiment and FOMO levels. This information can help them decide whether to "go with the flow" and take short-term long positions or "go against the crowd" and opt for short or mid-term short positions.

At Santiment, our primary focus is on sharing valuable insights within the scope of the behavior analytics framework. Our mission is to enable as many people as possible to comprehend the underlying market dynamics and, as a result, manage their portfolios more effectively throughout various market cycles.

We believe that by providing data-driven insights and a comprehensive understanding of market sentiment, investors can make more informed decisions and navigate the complex world of cryptocurrencies with greater confidence. Our goal is to empower individuals with the knowledge and tools necessary to succeed in this rapidly evolving market.

Some of the used metrics can be found here:

  1. Network activity and token holder balances distribution for some selected tokens:
  2. Baby sharks and the real ones:
  3. BTC funding rates (and quite a few more):

Thanks for reading!

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