Data shows the sentiment of XRP and Cardano investors has plummeted recently, but if history is anything to go by, this may be the time to become greedy.
XRP, Cardano, Bitcoin, And Ethereum All Show Negative Sentiments
As per data from the on-chain analytics firm Santiment, price bounces have become more likely during periods of such disbelief. The relevant indicator here is Santiment’s “weighted sentiment,” which, as its name already implies, measures the investor sentiment around a cryptocurrency.
The metric has two main components; the first is the “sentiment score,” which checks whether investors are talking positively or negatively about the given coin across social media platforms.
This indicator works by going through social text documents (things like tweets, Reddit threads, forum posts, etc.) and applying a machine learning algorithm to gauge the general sentiment.
The other component is the “social volume,” which measures the total number of social text documents currently discussing the cryptocurrency in question. 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 volume to obtain the “weighted sentiment” (hence the name). Here is a chart showing the trend in the weighted sentiments 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 has a large positive value for any asset, users talk a lot about the coin, and the mentions are generally positive. On the other hand, negative values suggest the conversation across social media is negative. The metric stays around the zero mark when the sentiment is neutral, or there is insufficient social volume.
As displayed in the above graph, Bitcoin, Ethereum, XRP, and Cardano all saw their sentiments plunge during the past couple of weeks as their prices have struggled. Now, the investors have become fearful.
Santiment notes, however, that according to the firm’s metrics, the probability of a bounce in the price increases when investors go through disbelief as they are right now.
There is an entire trading strategy based on this concept called contrarian investing. According to traders who follow this idea, the best times to buy are when investors are at their worst psychologically. Likewise, the most optimal buying windows are when the market has the most hype.
Traders using the strategy trade opposite to the general market, hence the “contrarian” in the name. Warren Buffet’s famous quote also sums up the philosophy nicely: “be fearful when others are greedy, and greedy when others are fearful.”
As the sentiment around cryptocurrencies like Cardano and XRP has become overwhelmingly negative now, maybe it’s a sign that markets have hit a local bottom.
At the time of writing, Cardano is trading around $0.32, down 10% in the last week.
ADA has observed some decline recently | Source: ADAUSD on TradingView