Data shows XRP and Cardano investor sentiment has been bearish lately, but if history is anything to go by, it may be time to get greedy.
XRP, Cardano, Bitcoin and Ethereum all show negative sentiment
According to data from on-chain analytics firm Virtue, during periods of such mistrust the price jumps become more likely. The relevant indicator here is Sentiment’s “Weighted Sense”, which, as its name already suggests, measures investor sentiment around a cryptocurrency.
The metric has two main components; The first is the “sentiment score,” which examines whether investors are talking positively or negatively about a given coin on social media platforms.
This indicator works through social text documents (things like tweets, reddit threads, forum posts, etc.) and applies machine learning algorithms to measure general sentiment.
The other component is “social volume,” which measures the total number of social text documents currently discussing cryptocurrencies. For example, all social media posts that mention ADA or a synonym will contribute to Cardano’s social volume.
The sentiment score is weighted by this social quantity to obtain a “weighted sentiment” (hence the name). Here is a chart showing the trend in weighted sentiment for four coins: Cardano, XRP, Bitcoin and Ethereum.
Looks like the value of the metric has been negative for all these coins | Source: Santiment on Twitter
When the weighted sentiment for an asset has a large positive value, users tend to speak highly of the coin, and the mentions are generally positive. On the other hand, negative values suggest that the interaction on social media is negative. When sentiment is neutral, or there is insufficient social volume, the metric hovers around the zero mark.
As shown in the graph above, Bitcoin, Ethereum, XRP, and Cardano have all seen mixed sentiment during the past few weeks as their prices struggled. Now investors are scared.
Sentiment notes, however, that according to the firm’s metrics, the potential for a price bounce increases when investors go through disbelief as they are now.
There is an entire trading strategy based on this concept called Contrarian Investing. According to traders who follow this view, the best time to buy is when investors are psychologically at their worst. Similarly, the most optimal buying window is when the market is most hyped.
Traders who use the strategy trade opposite to the normal market, hence the “contrary” in the name. Warren Buffett’s famous quote also sums up the philosophy well: “Be fearful when others are greedy and be greedy when others are fearful.”
As the sentiment around cryptocurrencies such as Cardano and XRP has now turned highly negative, perhaps this is a sign that the market has reached a local bottom.
At the time of writing, Cardano is trading around $0.32, down 10% over the past week.
ADA has observed some decline recently | Source: ADAUSD on TradingView
Credit : www.newsbtc.com