Sentiment Indicator Collapse

Definition ∞ Sentiment indicator collapse describes a sharp and significant decline in metrics designed to gauge market participants’ collective mood or outlook. This event is characterized by a rapid drop in indicators such as the Crypto Fear and Greed Index, social media sentiment scores, or funding rates, signaling a sudden shift from optimism to widespread fear or pessimism. It reflects a loss of confidence among investors and traders, often preceding or accompanying significant price corrections. Such a collapse suggests a strong capitulation event is occurring.
Context ∞ A sentiment indicator collapse is frequently reported in crypto news as a warning sign of deteriorating market conditions. It highlights moments when the collective psychological state of the market turns acutely negative, which can lead to further selling pressure. While it signals extreme fear, some contrarian investors view such a collapse as a potential opportunity, suggesting that pessimism may be reaching an unsustainable extreme.