The crypto market has recently reached levels of greed after spending much of the second half of 2019 in fear of further downside in the asset class.
However, sentiment has just flipped back to bearish after spending the first two months of 2020 bullish. Could this signal that the crypto market is about to crash? Or could this be a contrarian signal that more upside will surprise retail traders?
Crypto Investors Turn Bearish, Expect Further Downside in Bitcoin
Since the start of 2020, the crypto market has added over 70% in new value to the total aggregate market cap.
The increase in valuations comes as Bitcoin and altcoins broke free from downtrend resistance and went on a wild rally for over two full months now.
Related Reading | Ancient Math May Be the Key to Making Crypto Bull Market Riches
While the current local bottom was set in mid-December at $6,400, the low for 2020 so far at $6,800 marked the last time collective retail crypto traders were bearish on Bitcoin and other cryptocurrencies.
Since that date, Bitcoin rose from $6,800 to as high as $10,500 before falling back to current prices.
It’s only now that the rally is over that the greater crypto market has turned bearish once again.
According to a sentiment poll, crypto traders are expecting downside in Bitcoin before new highs are reached. This is the first time voting resulted in a bearish outcome since the start of the year.
This is the first time retail sentiment has been bearish since January 2, 2020.
— Yeesus (@virtuecapital1)
Can Contrarian Trading Lead to Profitable Positions?
When 2020 first began, retail crypto investors being bearish suggest that they had been anticipating more downside, meanwhile, the rally was just getting started.
Given the fact that retail investors are usually incorrect in their assumptions – just like their bearish sentiment kicked off the early 2020 rally – it could suggest that Bitcoin and altcoins are getting ready for another leg up.
Another leg up, would likely take crypto traders by surprise, given their expectations of a deeper drop in the days ahead.
The flip in sentiment voting also coincides with the teetering back toward fear, after spending the last two months in greed territory.
Related Reading | Coronavirus Fear Shakes Up Markets, But Crypto Remains Unaffected
Even the Oracle of Omaha himself, Warren Buffett champions the contrarian strategy to be fearful when others are greedy and to be greedy when others are fearful.
If Bitcoin pushes up from here, the iconic investor’s theory will be proven once again, and retail crypto investors could be left FOMOing into Bitcoin and altcoins at a much higher price.
But even if Bitcoin falls, crypto traders will simply take advantage and buy the dip, with the expectations of much higher prices leading up to the halving.
Featured image from Shutterstock