Bitcoin contrarians win as it rebounds against crowd expectations: Sentiment

Data from Sentiment shows that the latest bitcoin rally happened after most investors had given up on the idea that this was happening.

Bitcoin Observes Rebound After “Buy the Dip”, Crowd Calms Down

According to data from on-chain analytics firm Emotion, calls to buy the dip mostly disappeared just before the real rebound. The indicator of interest here is “social volume”, which measures the total number of social media text documents that mention a given topic or term.

Here text documents refer to the collection of posts/threads received from various social media platforms such as Reddit, Twitter, Telegram, and 4chan. Note that the metric only cares about whether such posts contain at least one mention of a given term, and not how often they do so.

This means that even if a formula mentions a subject multiple times, its contribution to the social volume remains one unit. The advantage of this restriction is that it provides a better picture of the trend being followed across the field, as just a few posts with lots of discussion cannot skew the total in your favor like this.

Now, in the context of the current discussion, crypto-related conversations where users are asking to “buy the dip” are relevant. So, Sentiment has taken the social volume of the entire digital asset space and then filtered it using terms specifically related to “buy” and “dip.”

Here is a chart that breaks down the social volume related to this topic for each of the major social media platforms:

The value of the metric seems to have had a surge a couple of days back | Source: Santiment on Twitter

As shown in the graph above, right after bitcoin and the rest of the market crashed due to news of the SEC lawsuit breaking Binance, the social volume for discussions related to these terms led to an uptick on Reddit and Twitter. Had seen a big spike.

This would mean that users got hyped and started making calls to buy the dip as soon as the price dropped. As it turned out, however, there had been no price rally yet, and BTC continued to slide after the market got excited.

As the coin continued to move mostly sideways the next day, discussions about buying the dip began to fizzle out. That’s when the real rebound in the asset’s price happened, seemingly to have caught the mainstream crowd off guard.

Historically, bitcoin and other assets have generally been more likely to show moves in the opposite direction to the majority view. The more the crowd moves in one direction, the more likely the market is to make an opposite move.

For this reason, adherents of “contrarian investing” believe that it is best to buy when the crowd is fearful and ideal to sell when greed is king in the market. It looks like this bitcoin rally may have worked in favor of these contrarian traders.

btc price

At the time of writing, bitcoin is trading around $26,600, down 2% over the past week.

BTC has declined since the recovery above $27,000 | Source: BTCUSD on TradingView

Featured Image from Kanchanara on Unsplash.com Charts from TradingView.com Santiment.net