Fundamental analysis deep dives into specific qualitative and quantitative data that can contribute to an asset’s underlying value. Technical analysis is the study of chart patterns and other indicators to predict future price movements. However, there’s another type of analysis critical to cryptocurrency trading: sentiment analysis.
Because cryptocurrencies are a speculative asset class, they are especially susceptible to sentiment, and changes in sentiment.
When sentiment reached peak exuberance in late 2017 and early 2018, cryptocurrency assets with little to no fundamental value or price history for technical analysis exploded in value solely due to the extreme hype surrounding cryptocurrencies at the time.
This type of extreme sentiment can signal a top is in, or a reversal is near. The opposite is true when sentiment reaches extremes in the other direction, and investors become overly cynical about an asset.
Sentiment analysis can, at times, be more effective than any other type of analysis. Technical analysis could provide bullish signals, yet an immediate cause for panic would prompt a selloff regardless of what chart patterns and indicators are saying.
There are a variety of ways to get a read on sentiment.
