3 Bitcoin Sentiment Analysis Tools: How They Work & How to Use Them
Bitcoin (BTC) sentiment analysis tools can be powerful. Used correctly, they can allow traders and investors to gauge whether crypto markets (and their participants) are feeling bullish or bearish.
So, with some claiming that the market is now hovering between bear and bull status, perhaps there is no better time than right now to look at three popular bitcoin sentiment analysis tools.
Below, we will take a look at how they work on their own (and perhaps together) – and look at ways you could use them to make smarter trading decisions.
Crypto Fear & Greed Index
The Crypto Fear & Greed Index is arguably the most popular sentiment indicator currently being used in the bitcoin market.
It was created by the team behind Alternative.me, who created a solution not unlike CNN’s Fear & Greed Index. But instead of measuring sentiment in the stock market, like CNN’s tool, it measures crypto investor sentiment.
The Crypto Fear & Greed Index shows whether investors are currently feeling bold or scared using a needle that moves from left to right, with measurements that move between the values of 0 and 100. The lower the value, the more fearful investors are. And the higher the index value, the greedier investors are feeling.
Factors that determine the index’s value include volatility, market momentum and volume, social media momentum and bitcoin dominance.
How to Use It
The Fear & Greed Index is very easy to understand and use. When the index shows that investors are concerned, it may well be a good time to buy. And when people are starting to show signs of greed, you might want to think about selling.
If the Fear & Greed Index sinks below 20, fear is prevalent, while a reading of 80+ could mean that smart investors sell while confidence soars.
Bulls & Bears Index
The Bulls & Bears Index, created by Augmento, is a social media sentiment indicator that shows how bullish or bearish conversations about bitcoin (BTC) are becoming on platforms like Twitter, Reddit and BitcoinTalk.
The index shows a value between 0 and 1. This value is computed using a classifier that is trained on crypto-specific language. This tool analyzes social media conversations and is sensitive to 93 different sentiments and topics.
How to Use It
The Bulls & Bears Index is a social media sentiment indicator that aims to gauge investor mood by analyzing social media mentions.
A low score, close to zero, suggests that bitcoin investors are bearish, while a high reading close to 1 suggests that investors are bullish on bitcoin on social media. If you believe in the wisdom of the crowd, then you might want to buy bitcoin when the Bulls & Bear Index starts to climb – and sell when it starts dropping.
Bitcoin Sentiment Index
The Bitcoin Sentiment Index, developed by Bitts Analytics, is another social media sentiment indicator that aims to provide insight into the way crypto investors feel at any given time.
The indicator’s value is computed using machine learning solutions that scan social media posts that mention bitcoin.
This may provide fascinating insights. But critics argue that it is difficult to gauge the tool’s viability as it is not immediately clear what factors exactly are taken into account during the computation process.
How to Use It
The Bitcoin Sentiment Index is a little more complex than both the Fear & Greed Index and the Bulls & Bears Index.
However, most traders will likely agree that it is not difficult to read. When the indicator line drops, the market sentiment is turning bearish. And when the indicator’s sentiment line climbs, investors are starting to express more bullish sentiments on social media.
How to Trade Bitcoin Using Sentiment Analysis Tools
Ultimately, it is important to bear in mind that market sentiment does not always dictate future price developments. Even if, for example, all of the indicators mentioned suggest that now is a good time to buy bitcoin, the price could still fall suddenly due to other factors.
Therefore, as discussed further in this article, bitcoin sentiment indicators should ideally be one of many of the tools in your arsenal of crypto market weapons. To use them as the sole basis of your trading strategy could be quite risky.
That said, as a trader, building up a wide range of tools will help you make better-educated and more informed estimates about where the market is heading next.
As such, getting to grips with one or more of the indicators discussed above could be of help when you are trying to forecast price movements based on trading data from technical indicators.
Knowledge, as they say, is power. And the more you know, the more you could potentially earn!