- The Crypto Fear & Greed Index is at 10/100. Extremely fearful markets
- Bitcoin crashes below $30K and UST (prominently backed by BTC) is down
- Fear of regulations increases, and Terra’s UST implosion drives panic
- Ethereum dwindles 15%, XRP falls 25%. SOL and DOGE are down by over 26%
- Most altcoins follow a similar pattern to BTC declining by over 15%
2022 has not been the friendliest year for cryptocurrencies. Ever since the rise of BTC to over $68K ATH (All-Time High) record in November 2021, everyone gasped in the glory of the decentralized finance system. 2022 was the promised year where BTC surges over $100K. However, the sad reality continues to hit the crypto enthusiasts and traders.
Since November 2021, crypto prices saw moderate to extreme crashes which caused people’s fear of getting into the market and panic-selling their digital assets and cryptocurrencies. Thus, reflecting the global Crypto Fear & Greed Index. Bitcoin at the time of writing this piece was traded at $28,071.56 recovering from around $26K earlier this month.
Crypto Fear & Greed Index: Explained
If you are in crypto, you must get acquainted with one of the most important indexes to guide your trading behavior. At the top of which lives the Crypto Fear & Greed Index. The Crypto Fear and Greed Index is a sentiment indicator based on CNNMoney’s model for the TradFi market that focuses on cryptocurrencies. The index was created and hosted by Alternative.me.
What is the Crypto Fear & Greed Index?
The index, producing numerical value of fear vs. greed buying cryptocurrency. It is designed to provide traders with an effortless way of understanding the markets they are about to invest in and allow them to make smarter decisions.
Providing a scale of 0 to 100. 0 being no greed and the most extreme sign of fear. 100 being the opposite end of the spectrum, no fear, and extreme signs of greed. When the indicator reaches 50, it means the market is neutral. You can look at it in a risk vs. reward relationship to make it simpler.
If the index is at low levels, your risk is higher, and the reward is lower. If the index highlights elevated levels, your risk is lower, and the reward is higher. However, according to Shrimply Academy, if the index’s indicator approaches either of the extremes (0 or 100), traders may foresee the “crypto market to reverse its direction. More specifically, these extremes indicate that the market is too fearful or greedy, which leads to the opposite effect.” Meaning, when the market looks extremely fearful, your risk/reward relationship reverses; your risk is low compared to your high reward if the market reverses. That rule does not always apply but it is something to consider if you are considering buying cryptocurrencies.
How is the Crypto Fear & Greed Index Measured and What is Considered?
As altcoins are correlated to Bitcoin’s price action, the Fear & Greed Index bases its score exclusively on Bitcoin-related market data. According to Alternative.me, “Each data point is valued the same as the day before in order to visualize a meaningful progress in sentiment change of the crypto market.” The following types of data are measured and utilized.
The platform gauges the volatility of BTC by measuring its current value and max. drawdowns vs. its corresponding medium-term average values of the last 30 days and 90 days. Their argument is that “an unusual rise in volatility is a sign of a fearful market.”
Market Momentum/Volume (25%)
Like Volatility, BTC volume is measured by comparing its current values against the averages of past 30/90 days. A greedy market is one that sees high daily volumes over a sustained period.
Social Media (15%)
Alternative.me uses social media to measure sentiment analysis on different platforms. While they are still experimenting with Reddit’s in their text-processing algorithm and not utilizing it yet, their Twitter analysis is up and running.
They collect and measure the hashtags and interest in each coin, although here BTC is only used for the index. The data they gather includes how many people are talking about cryptocurrencies and how fast the interactions they receive within a certain period. When they see an unusual interest in a coin, that is an indication of a “greedy market behavior” for the coin. Similarly, if there is a lack of interest in the coin, that is a sign of fearful market behavior.
Bitcoin Dominance (10%)
This measurement is subject to argumentation. Alternative.me assumes BTC’s dominance in the market causes a fear of investing into riskier altcoins. However, they agree that there is an argument to be made for an opposite relationship. When BTC is dominant, traders may want to get into the riskier altcoins as they may get more profits from them. Making their behavior greedier towards other altcoins and more fearful of BTC. If your head hurts, it is okay, ours is too.
Google Trends (10%)
Alternative.me pulls data from Google Trends to gauge the public interest into specific coins. They investigate several Bitcoin related search queries and measure those numbers. Search volumes are considered as well as other currently popular recommended searches. If search queries for “Bitcoin” are low and other queries such as “Bitcoin price manipulation” (search query in 2018 after BTC ATH) are rising, that causes fearful market behavior.
Crypto Greed is at Extreme Lows
On Thursday, May 30, 2022, the index fell sharply to indicate “Extreme Fear” from being over 30 just last week to now struggling to maintain itself at 10 according to Alternative.me’s readings.
Image Source: Alternative.me
Meaning, traders and the general public’s sentiment is negatively associated with cryptocurrencies. They are extremely fearful of investing into crypto markets and feel high risks of doing so.
Should You Buy Crypto Today?
The big question remains to be answered. Is it safe for you to buy crypto today?
We cannot tell you to buy or not buy, because the general rule is to always DYOR (Do Your Own Research.) You should leverage your knowledge and your own research to make your investment decisions.
However, we can investigate the index and expect two results. The first result being continued bearish market and lower BTC and crypto/altcoin prices in the short-term awaiting the market to correct itself.
The second result might be a reversal in sentiment and reversal in market prices. Meaning, all the sudden, we might just see BTC and other crypto/altcoins exceeding predicted prices and high returns coming in.
There is a lot of risk involved in any investment and the rule of thumb is to invest what you can forget about. If you decide to invest today, do not obsess over it daily or worse, hourly. If you cannot invest today, wait until you can invest and do your own research into the coins you want to invest in.
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