Market sentiment is both a risk and an opportunity in cryptocurrencies. 1. Emotions form exponential fluctuations through information cocoons, leverage amplification and narrative dominance; 2. History shows that sentiment can drive policy favorable rises, and also lead to traps such as LUNA collapse; 3. Cognitive biases such as disposal effects, anchoring effects and social recognition aggravates irrationality; 4. A defense system of regular stop loss, instrumental filtering and systematic hedging should be built; 5. Short-term sentiment is noise, medium-term chain data is signals, and long-term deviations give birth to value opportunities. Investors can only achieve rational game by controlling emotions.

Price fluctuations in the cryptocurrency market are essentially a digital mapping of group sentiment. Market sentiment may both become a catalyst for asset value discovery or evolve into a vortex that swallows wealth. This article analyzes the value attributes of market sentiment in different scenarios from three dimensions: emotion-driven mechanism, historical verification, and behavioral finance principles, and discusses how investors build an emotional defense system.

1. The underlying logic driven by emotions: the transmission chain from FOMO to panic

The emotional transmission of the cryptocurrency market has an exponential amplification effect, and its core originates from three underlying mechanisms:

1. Information cocoon effect : Social media algorithm push strengthens similar views. When Bitcoin exceeded US$117,000 in July 2025, the number of views on related topics on a certain platform surged by 400% in a single day, forming a positive feedback loop of "price increase - discussion heating up - capital influx".
2. Leverage multiplier amplification : 5-100 times leverage in contract trading exacerbates mood swings. During the Bitcoin plunge on July 17, 2025, the total amount of liquidated the entire network in 24 hours reached US$465 million, of which 89% of the losses were caused by the failure of high-leverage longs to stop losses in time.
3. Narrative-led pricing : Institutions reshape valuation logic through narratives such as "digital gold" and "Web3 revolution". After BlackRock's Bitcoin ETF exceeded US$30 billion, market sentiment pushed the coin price to break through historical highs, and the price no longer fully reflects the supply and demand relationship.

Mainstream Bitcoin Exchanges in 2025:

Ouyi official website:

Ouyi official app:

Binance official website:

Binance official app:

gate.io official website:

gate.io official app:

2. Historical Mirror: Typical Scenes of Emotional Honey and Trap

The **Double-edged sword attributes that repeatedly verified emotions in market history:

1. Emotional Honey Case : After the passage of the US Genius Act in 2025, the market's optimism about compliance pushed Bitcoin to rise by 18% in a single week, and institutional investors' net inflow of funds exceeded US$5 billion through ETF channels, forming a positive cycle of "policy favorable - sentiment warming - capital entry".
2. Emotional Trap Case : In 2022, LUNA price fell from US$100 to US$0.00000112. The core reason for the evaporation of US$40 billion in market value is the panic selling caused by the decoupling of US$2.4 billion. Retail investors chased high prices under the FOMO sentiment and eventually became victims of the "emotional avalanche".
3. Emotional mismatch scenario : After Bitcoin exceeded US$117,000 in July 2025, market sentiment overheated caused short-term speculative funds to account for more than 60%, and subsequently the price fell by 12%, and investors who did not take profit in time lost an average of 26%.

3. Behavioral Finance Perspective: Cognitive bias behind emotions

The extremes of market sentiment stem from the inherent weaknesses of human nature**:

1. Disposal effect distorts decision-making : Behavioral economics research shows that investors hold loss-making assets three times longer than profitable assets. Data from a certain exchange in 2025 showed that the proportion of retail investors who have not stopped losing when they lose 28% is as high as 73%, while the proportion of 15% is eager to sell for 68%.
2. The anchoring effect misleads judgment : Investors often use the purchase price as the value anchor. During the 2021 Meme Coin Bubble, 91% of high-chasers refused to stop losses because they anchored their historical highs, and were eventually forced to cut their losses after the price plummeted by 95%.
3. Social identity deviation amplifies fluctuations : When the market sees signals such as "big whale address changes" and "KOL platform", retail investors are prone to herd behavior. In 2025, a DeFi project took advantage of the "AI concept" to hype it and attracted more than 100,000 new users to enter the market within 24 hours, but then plummeted by 80% due to liquidity depletion.

4. Emotional management strategy: build an anti-fragile defense system

Responding to market sentiment rationally requires three-layer defense mechanisms that are regular, instrumental and systematic:

1. Rule layer: Quantitative sentiment threshold
   • Set up an "emotional thermometer": When the social media discussion volume increases by more than 200% per day, automatically reduce the position by 30%.
   • Adopt the "three consecutive losses and stops" method: after three consecutive emotional trading losses, force the stop for 7 days to reset your cognition.
2. Tool layer: Technology filters noise
   • Set a dynamic stop loss in combination with the ATR indicator (average real amplitude), for example, set the stop loss position to 1.5 times the volatility of the last 30 days.
   • Using the exchange's "conditional order" function, the preset price triggers automatic closing of positions. Data for 2025 show that traders using conditional orders have a stop loss execution rate of 47% higher than manual operations.
3. System layer: Building an emotional isolation belt
   • Position pyramid rule: The risk of a single transaction shall not exceed 2% of the principal, and the overall position shall not exceed 30% of the total assets.
   • Hedging strategy configuration: retain 5%-10% of USDT as "crisis reserve", and is used to replenish positions or buy at the bottom when the price plummets.

5. Reexamination of emotional value: the transformation logic from noise to signal

The value of market sentiment depends on the cognitive level of **Investors**:

1. Short-term noise attributes : Instant mood swings on social media (such as KOL speech, breaking news) are often noise. Rumors about Trump's policy in 2025 led to a single-day amplitude of Bitcoin reaching 9%, but the next day fell by 10% due to the difficulty of implementing the policy.
2. Medium-term signal value : deep emotional indicators such as changes in institutional holdings and on-chain data (such as exchange Qianbao balance) have a trend-guiding role. Before Bitcoin plummeted in July 2025, Giant Whale Address had reduced its holdings by 350,000 in batches, while retail investors increased their holdings against the trend due to FOMO sentiment.
3. Long-term value anchor : When market sentiment drives prices to deviate from fundamentals, it is an opportunity for value investment. After the LUNA collapse in 2022, some investors claimed compensation through legal means and acquired underlying assets at low prices, ultimately making profits from ecological reconstruction.

In the zero-sum game field driven by cryptocurrencies, market sentiment itself has no distinction between good and evil. The key lies in whether investors can penetrate the appearance and identify the value anchor and risk threshold behind the emotions. From the carnival of Bitcoin breaking through a record high in 2025 to the bloody and tears lessons of the LUNA collapse, history has repeatedly proved that those who can control emotions can take advantage of the situation to create excess returns; those who are controlled by emotions will eventually become victims of market fluctuations . Investors need to incorporate emotional management into the trading system, and ultimately achieve the transformation from "emotional slave" to "rational gamer" through regular execution, instrumental filtering, and systematic hedging.

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