Because it always involves humans, the crypto market will always not escape market psychology, because humans have feelings of fear and greed. On an individual scale, this would be called trader psychology, and on an overall scale, this would be called market psychology.
What is Crypto Market Psychology?
Of course, when it comes to short-term and long-term price movements in the crypto market, there will be two-way differences.
Not only will it be the difference to see if the price will go up or down, it will also be the difference between whether the price will continue to rally or consolidate.
The psychology of the crypto market is a psychological picture of the actors in it, who ultimately move the market because there is a winner (a majority point of view) who moves it.
Of course, in every price movement, there will always be parties who make profits and gain losses at the same time because the money has flowed to those who have won.
When the price strengthens, it means that most market participants think that the price is under its proper value (undervalued), or it could still be in a bullish trend.
On the other hand, when the price weakens, it means that most market participants think that the price is in an overvalued position, or it could still be in a bearish trend.
What Affects It?
While there are quite a number of factors, there are two general factors that greatly affect the market, both in the short term and in the long term.
These two factors are technical and fundamental factors. Two factors that are very commonly used in various other markets such as the foreign exchange market (forex), commodities (gold, silver, palladium, oil, cotton, etc.) and stocks.
However, it should be underlined that, all these factors will lead to a level of balance between the “demand and supply” of an asset in the crypto market. This is the essence of asset price movements.
Fundamental Factor
In terms of fundamentals, market participants, traders and investors will use the sentiment of an economic news as the basis for reading the prospect of future price movements.
For example, when China banned crypto mining in mid-May 2021, market participants entered a fear phase that led to a massive sell-off.
Why? That's because psychologically, they are worried that there will be a downside for crypto assets so they liquidate their holdings to observe how the market will go.
Looking for security makes investors look at other assets that are less risky, such as the US dollar, because at that time there was hope for stimulus and so on that made the US currency strengthen until the end of 2021.
And most recently, when the US inflation data hit its currency, crypto assets tried to bounce back in mid-January as the market's rapid attitude to risk appetite made risk assets like crypto look back.
Is this a sign of a recovery in the crypto market? Not necessarily.
The news may only be short term because this will depend on how big the impact this sentiment has on the global economy.
Technical Factor
From a technical point of view, market participants will stick to the signals of past price movements, or commonly known as price action. In price action, market participants will usually use a mapping called the support and resistance (SnR) area.
The SnR area will usually be mapped from the main high and low points of a price movement. It can be seen, when the price goes up to enter the resistance area, the price starts to get a strong selling resistance. Meanwhile, when the price enters the support area, the price starts to get a strong buying resistance. Indeed, to be able to map the area, it takes a lot of experience and flying hours. However, this is what makes traders able to gain profits faster than investors. Take advantage of the huge price volatility in the crypto market. In addition, the use of tools such as indicators and technical tools is also commonly used to help traders make their trading decisions. But make no mistake, technical analysis can also be used as a guide for long-term investment. On the other hand, fundamental analysis can also be used as a guide for short-term transactions. In essence, these two factors are the driving force of the human psychology in it, to move simultaneously (on a massive scale) and to become the psychology of the market that drives asset prices, in this case, crypto assets.