CryptocurrencyInvesting

Crypto-Psychology Is Now A Thing

By March 28, 2018 No Comments
Remember the good old days when a disappointing day meant all your coins didn't blast to new highs? How things have changed. Now even really really good news can barely staunch the hemorrhage of crypto-carnage and you're happy just to see your crypto in light pink. What's going on here? There's a powerful psychological force at work that smart investors can use to make money.

Remember the good old days when disappointment meant all your coins didn't blast to new highs today? How things have changed. Now even really really good news can barely staunch the hemorrhage of crypto-carnage and you're relieved just to see your crypto in light pink. What's going on here?  There's a powerful psychological force at work that smart investors can use to make money.

Your Biggest Worry  

Do you find yourself longing for the days, not so long ago, when your biggest worry was how much tax you'd have to pay on all your crypto profits?  You're not alone.  Now you're relieved just to wake up and see your coins in light pink, down just a few percent, rather than in blood-red, full-on hemorrhage mode.

My Dog

In 2017 a five-year-old could've made money in cryptocurrency - my dog probably could've made money.  Every coin was up up up - and even when they were down, they were up even higher just a few days or even hours later.  A measly $100 invested in each of the top 100 cryptocurrencies would have returned more than $2.5 million in just one year.  That's not a typo.  $2.5 million.

So What's Going On?

Investor sentiment is a powerful market force that is widely studied in academic circles but only minimally understood.  Markets are driven less by actual facts and news and more by how investors and traders interpret that news.  Media can spin and the government can double-talk all they want, but investors vote with their wallets and the ultimate impact of any fact on the market is written in the price charts every day.

Cool New Tools

This is why your crypto-toolbox can be powerfully enhanced by adding a few investor sentiment analysis tools - and since crypto-psychology has recently become a big thing, there are several cool new tools for your arsenal.

The blue line in the upper window is the daily percentage of bitcoin futures traders who are long.  The blue and red lines in the lower window show the percentage of traders long and short.

The blue line in the upper window is the daily net-long percentage of bitcoin futures traders. The blue and red lines in the lower window show the numbers of traders long and short.

Long vs. Short Positions

Since bitcoin futures are now traded on the Chicago Mercantile Exchange, it's easy to find out exactly how pro traders are betting on the crypto markets in real time.  The website dailyfx.com will give you the percentage of traders who are betting bitcoin price will rise ('longs') vs. the number who are betting that prices are still heading downward ('shorts').

dailyfx also gives an indicator summary of trader sentiment as to whether the overall market is bullish (heading up) or bearish (heading down).  Watch closely every day for signal changes - in the crypto markets they can happen pretty quickly, but as a general rule the signal will usually change to mixed between bullish and bearish phases, giving you a little time to decide if you want to get in or out of the market based on that signal change.  There is also a news ticker focused on trader sentiment.

Neuroscience Meets Cryptocurrency

In the crypto-verse we call it FOMO & FUD, but at bottom it's always the same 2 human emotions driving prices up or down - fear & greed.  With this month's release by media giant Thompson Reuters of a new data feed tracking crypto-emotions, investors can trade based on more than just how traders are betting - they can actually trade based on how people feel about cryptocurrency.

The MarketPsychIndices product, which now includes bitcoin for the first time, will consist of AI bots continually scouring hundreds of data sources for key words and phrases and then employing a combination of artificial intelligence and neuroscience to derive emotional indices such as 'fear' and 'greed'.  An emotional trend change may give traders an opportunity to pounce ahead of a significant price change,

Media giant Thompson Reuters' fear and greed indices will use AI bots to scour hundreds of websites and assemble a neuroscientific model of crypto-emotions which may give traders a chance to pounce ahead of a major price move.

Media giant Thompson Reuters' fear and greed indices will employ AI bots to scour hundreds of websites and assemble a neuroscientific model of crypto-emotions which may give traders a chance to pounce ahead of a major price move.

The More Misery The Better

Thomas Lee, co-founder of Fundstrat and former chief equity strategist for JPMorgan Chase, has developed his own index to quantify just how miserable bitcoin investors are, and it's flashing "Buy, Buy, Buy!"

Lee's model takes into account more than just price trends.  He includes such esoterica as the number of winning trades, up-days vs. down-days, and market volatility, to arrive at an overall "Misery Index".

It is really uncommon to be this miserable owning bitcoin, The last few times this happened was in November 2012, September 2016 and January 2015.  The last four times this was below 27…there was not a single instance with bitcoin not up 12 months later.

Tom Lee, Fundstrat co-founder & former Chief Equity Strategist for JPMorgan

Wall Street strategist Tom Lee's "Bitcoin Misery Index", which tracks several unique parameters such as percentage of winning trades, is flashing a major buy signal.

Wall Street strategist Tom Lee's "Bitcoin Misery Index", which tracks several unique parameters such as percentage of winning trades, is flashing a major buy signal.

According to Lee's meticulous technical analysis - the more misery the better.  That is to say that in the history of bitcoin major market rebounds and long uptrends have typically followed periods when the misery index was below 27, which for Lee is a powerful buy signal.  Currently the index is at 18.8.

Lee is one of the few Wall Street analysts who makes regular precise bitcoin price predictions.  Based on his technical models, his long-term target for bitcoin price is $91,000 by March 2020.


Images via Shutterstock, Charts via dailyfx.com, cointelegraph.com

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