Six-month average returns for those invested in bitcoin have plummeted to -27.81%.
This has been revealed by Santiment, who, nonetheless, adds that when traders are losing so much, FUD increases in the form of negative posts.
📉 #Bitcoin's average return for 6-month investors is sitting at a very low -27.81%. When traders are this under water, #FUD typically arises in the form of negative-driven posts. Keep this negative bias in mind & take crowd takes with a grain of salt. https://t.co/97tCnr5nwz pic.twitter.com/F5RNH2RJN5
— Santiment (@santimentfeed) July 12, 2021
Santiment also states that this is in fact a negative bias and that this mass FUD is to be “taken with a grain of salt”.
In fact, one must distinguish between traders and holders.
Holders buy bitcoin in order to hold them in their portfolios for the long term, i.e. for months or even years. For example, someone who bought bitcoin a year ago would now be in profit by 256%, and only someone who bought in 2021 at a price above $33,000 is currently at a loss.
Traders, on the other hand, operate intraday, i.e. with a very short time horizon of hours, days or weeks at most.
The returns of bitcoin: the MVRV index
The chart shown by Santiment looks at the 180-day (6-month) MVRV (market-value-to-realized-value) ratio, which is the ratio of market capitalization to realized capitalisation. This is used to compare the current price with what can be considered the “fair value” of the last six months.
Since around 19 May 2021, the day of the flash crash that brought the price back to around $30,000, the 180-day MVRV ratio has fallen into negative territory, and since the crash on 22 June it has approached -30%.
It is worth noting, however, that the choice of 180 days is arbitrary, and for example if this value were reduced by half (90 days) the MVRV ratio would probably approach 0%. Indeed, doubling it to one year would probably make it positive.
However, it is usually the 180-day MVRV ratio that is used to understand how positive or negative trader sentiment can be, not least because most traders are not professionals operating in the very short term with adequate hedging, but amateurs with slightly longer time horizons and generally no hedging, or inadequate hedging.
So the current low level of this index suggests that the sentiment of most traders towards bitcoin might be very negative indeed, with a higher probability of FUD.