Fear and Greed Index in the Cryptocurrency Market

An Insight into the Crypto Fear and Greed Index

The cryptocurrency market has been in a bear phase for some time now. And it will take a while before we see crypto going back to the steady levels it witnessed in the past year. However, a bear market could be an investment opportunity with greater profits. When the charts go red, the assets go to a lower price point. This means you can get your assets at a discounted rate.

Nevertheless, given the multitude of factors that impact the crypto market, it is hard to exactly determine the next price swing of a cryptocurrency. However, market indicators like the Fear & Greed index go a long way in providing strategic insight. Despite a lot of emotions that go behind investments, fear and greed seem to be the most significant. Fear and greed are the most important emotions that affect any market. Although they are on the opposite ends of the spectrum of emotions, their comparative index is an important factor to consider while investing.

Fear and Greed

Fear is defined as an emotion that denotes anxiety and loss of courage. In investments, it usually relates to the sentiment of ‘How bad can it get?’. This emotion makes people wary of investing as they are scared of the potential losses they may accrue. Hence, they sell more. On the other hand, greed is characterized as a selfish desire to have more of something than what is needed. It correlates to the sentiment of ‘How better can it get?’. This emotion pushes people into making more investments as they crave even more profits. In other words, they buy more. These emotions together constitute the Fear & Greed index. It is a number between 1 to 100. Accordingly, 1 denotes extreme fear and 100 denotes extreme greed. This index was developed by CNNMoney to gauge the movements of the stock market.

What is the Bitcoin Fear & Greed index?

The Bitcoin Fear & Greed index, developed by Alternative denotes the investor sentiments toward Bitcoin. As an extension, this index is generally accepted for the entire crypto market. Some altcoins however do not mimic this pattern, so they are slightly less affected by this factor. Extreme fear is a sign of investors being too worried which could indicate a buying opportunity. On the contrary, when investors are in a state of extreme greed, it means the market is expected to soon have a correction.

History of Crypto Fear & Greed Index

The chart below by Alternative maps the history of the Crypto Fear & Greed index since 2018. The highest it has ever gone is 95, for a couple of times. The latest being on February 19th, 2021, when BTC was worth $52,354. This coincided with bitcoin reaching an ATH of $63,484 less than a month later on March 13th, 2021.
And from there, the value kept dipping until July 20th, 2021 when BTC was worth $29,962. Interestingly, the index that day was 19, showing extreme fear. After this, BTC kept going up, until it was worth $52,774 on September 6th, 2021 in less than two months. The index at that time was 79.

This pattern has kept repeating since 2018. Each time the index dropped to low numbers, the price of Bitcoin rose within a relatively short time. Whereas, any time the index was up, it was followed by a decline in Bitcoin price.

What factors affect the Bitcoin Fear & Greed Index?

The following five factors are taken into consideration and analyzed before the Bitcoin Fear & Greed index is updated each day:

  1. Volatility
  2. Market Momentum/Volume
  3. Social Media
  4. Dominance
  5. Trends

A sixth factor called Surveys has been paused by the site.

So, is it a good indicator of investing in cryptocurrencies?

Fear & Greed Index vs Price of BTC

The above chart by Look into Bitcoin maps the price movement of Bitcoin over the Fear & Greed Index. Every swing in the index was followed by a significant change in the price of Bitcoin.

With the index going on 6 on June 18th and 19th, 2022, this is the perfect time to invest in BTC to get maximum profits in a relatively shorter term. But hey, don’t take our word for it, DYOR (while we go invest in BTC!).

For day-traders, the Crypto Fear & Greed index is an important factor to gain insight into the best times to invest. Let us reiterate that there are several other indicators that can help one with investing at the right time. Moreover, if you are a HODLer, you may try to take advantage of the market by buying when others are fearful. As Warren Buffet, who has always been against crypto himself advises – “Be fearful when others are greedy, and greedy when others are fearful.”. If you wish to buy crypto in a quick and easy way, you can buy it from us directly with cash. You can read more such insights here.

Please note that this article is an opinion, and does not represent financial advice by IN4X Global.

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