As with other financial markets, sentimental analysis has been one of the measures to consider before investing or trading, so it is in the cryptocurrency market.
Market sentiment is an integral part of the factors that drive a particular asset price.
In the crypto market, investors' or traders' sentiment about a crypto asset can drive the price low or high depending on the perspective of participants in the market toward that particular crypto asset.
It's important to understand what sentimental analysis is, and also know how best you can apply it to justify your investment or trade decision.
In this reading, I'll walk you through the basic meaning of sentimental analysis and its importance.
What Is Sentimental Analysis In Crypto?
Sentimental analysis in crypto is the examination of investors' or traders' thoughts and emotions toward the crypto market.
The crypto market is impacted by demand and supply, when there's much demand in the market; it tends to be bullish. Conversely, markets become bearish when there's much selling pressure.
However, investors or traders thought about the market will determine the state of the market.
When investors think a certain event or news would make the crypto market drop drastically, they tend to be skeptical about buying cryptocurrency at that period and might decide to sell off the cryptocurrency they already have, thus there would be more dump in the crypto market.
The market sentiment here is bearish – which was influenced by a certain event or news.
For traders or investors that are looking to make an investment or trade decision (short-term or mid-term goal), they conduct sentimental analysis by studying the overall behaviors of market participants toward the market.
Emotions and thoughts about the crypto market are some of the factors to consider to accomplish an ideal sentimental analysis.
The sentimental analysis also includes the aggregation of news and social mentions about a particular crypto asset to determine the opinions of market participants on the asset.
For instance, positive social mentions or development news about a particular asset could drive much buying pressure, thus the price would increase exponentially.
As much as it's similar to fundamental analysis, it's very much different from analyzing the fundamental factors of a crypto project.
Importance Of Sentimental Analysis In Crypto
The importance of sentimental analysis in cryptocurrency is as follow;
- It can give investors a clear picture of the price movements and sentiment around an asset.
- The use of sentiment analysis tools can help investors make more informed decisions about whether to buy or sell an asset.
- Technical and fundamental analysis is not enough to make an ideal investment or trade in the crypto market, sentimental analysis, when combined, can help investors or traders to get accurate information about the crypto market.
- Sentimental analysis is also important as it helps market participants to make quick bucks within a short period.
Sentimental analysis is used to determine whether it's good to invest in or trade a crypto asset at a given time.
It has been an essential analysis that cannot be neglected in any financial market, most especially the crypto market.
It's believed that analyzing the market without considering participants' attitudes toward the market could lead to disastrous investment or trade decisions.