Many sentiments rule the financial markets, the crypto one included. But the two main emotional drivers when it comes to financial investments are fear and greed. Emotional trading can lead to big losses so people have come up with a way to tell you what emotions rule the crypto market at the moment. In this article, we’ll present to you the crypto fear and greed index explained – including how it works, why you may want to use it, and what is its current status.
What Is the Crypto Fear and Greed Index Explained
Every trader has their own strategy, follows different plans and uses various tools to help them trade better. But let’s be completely honest, sometimes all that logic is lost and you’re trading only based on your emotions. Considering how volatile the crypto market is, it’s natural that its behavior is so highly related to emotions. People are afraid of missing out, activating their FOMO, when the market starts to pick up, so they get greedy. In the opposite direction – when the market starts dropping, people tend to panic-sell their assets in fear. As these two are the biggest ruling emotions on the crypto market, an index that measures them was created – the crypto fear and greed index. The purpose of the index is to inform people on the general sentiment of the crypto market and help them decide how to act in the current moment.
This is a live-updating crypto fear and greed index, provided by Alternative.me
The Crypto Fear and Greed Index Explained: How It Works
The crypto fear and greed index ranges from 0 to 100, 0 being “Extreme fear” and 100 – “Extreme greed”. When the index is showing that the prevailing emotion is extreme fear, this means that investors are very worried, portentially showcasing a buying opportunity since the crypto prices may be dropping at the moment. The times of extreme fear are found as the perfect times to buy assets by some investors, as the low demand and low prices are seen in this period. On the opposite side, when the index is around the higher level of greed, you can expect the market to enter a correction soon. If the scale reaches 80 or higher, meaning extreme greed, it’s the best time to sell, since the crypto prices are high as well.The data that the crypto fear and greed index collects can go back up to four or five years, when cryptocurrencies started gaining popularity. However, the easiest to find historical values would be the fear and greed index explained data from the current moment, yesterday, last week and last month. The data that is presented for the market sentiment is measured mainly for Bitcoin and other big altcoins.
How Is Crypto Fear and Greed Index Calculated and What Factors Influence It
The crypto fear and greed index relies on five sources:
- Volatility (25%): Calculated from the volatility and maximum drawdown of the Bitcoin price, compared to the last 30 and 90 days. If volatility increases, it may be a sign for a fearful market.
- Market momentum/volume (25%): Measuring the current volume and market momentum, compared to the last 30 and 90 days average values. High daily buying volumes in a positive market may mean a greedy market.
- Social media (15%): Counting the posts on hashtags for different coins on Twitter and checking how quickly and how many people interacted in a certain time frame. Very high interaction rate may be a greedy market behavior.
- Dominance (10%): The focus here is on the Bitcoin dominance mainly. If it raises, people are fearing altcoin investments and looking for a safe investment in BTC. If the Bitcoin’s dominance shrinks, people are getting greedy and turning to other altcoins.
- Trends (10%): Extracting data from Google Trends on the change of search volume and recommended other current popular searches. The results can showcase either fear or greed, depending on how they’ve changed in the selected time frame.
Where to Find Fear and Greed Index Crypto
Several websites provide crypto fear and greed index charts and widgets. They look similar to CNNMoney’s stocks fear and greed index that was created first. One of the most popular sites you can find this index is Alternative.me. The site provies a crypto fear and greed index explained chart and a chart for the greed and fear in crypto over time, up to four years back.
Another site that provides a crypto fear and greed index explained is Cryptocurrencytracker. They too provide two charts – one that measures the index and a chart that shows the market emotions since cryptocurrencies started gaining popularity. At Coinglass you can find a crypto fear and greed index that showcases the Bitcoin prices throughout the measured period of time too and how it went along with the fear and greed of the market.
How to Use the Crypto Fear and Greed Index Explained and Why You May Want to Do It
Having the crypto fear and greed index explained, now you may wonder how you can use it for trading crypto? It the index could be a great guide to spare you emotional trading, born out of FOMO or plain panic. It’s clear that public santiment affects cryptocurrencies’ value. But using the crypto fear and greed index could be more useful than listening to people online telling you which coin to buy or to sell. Instead, if you check out what’s the prevailing market sentiment, you can get a better idea how the market and the people are interacting in a certain period of time, based on actual factors and not just someone on social media speculating.
The crypto fear and greed index explained here isn’t an investment guide or research tool on how to profit the most. Instead, you can use it as a way to find the best market timing for buying and selling, looking at how other people are doing it too. The important thing to remember here is that you shouldn’t let your own emotions cloud your judgment in any crypto trade. Instead, research what the broad sentiment is and consider it, along with the rest of the factors, when making your decision.
What Are Is the Latest Data From the Crypto Fear and Greed Index Explained
If you’ve been following the crypto market since last year, you may no need a crypto fear and greed index explained to you at the moment because clearly, the prevailing emotion has been fear for a while now. The market started crashing after Bitcoin reached its current all-time high in November 2021. The crash continues through this year as well, and while there may be different reasons for the cryptocurrency crash of 2022, one thing is certain – many investors are scared. Experts predict that crypto will recover eventually and many are taking advantage to buy the dip, in hope of getting huge returns later.
However, the crypto fear and greed index was reported to have hit its lowest level this May, since March 2020, when the pandemic started and cryptocurrency prices plummeted down. This was caused by Bitcoin going under 30K, the stablecoin TerraUSD losing its peg to the dollar and the cryptocurrency Terra (LUNA) losing 99% of its value. All of this brough the crypto fear and greed index to the range between 9-14. Since, there seem to be light at the end of the tunnel for those who relied on the crypto fear and greed index explained here. As it was reported that Bitcoin saw surprising level of inflows in the week of its crash. This is a real-life proof of what the index claims – many people do take advantage of fear markets to accumulate cryptocurrencies at lower prices.
Here are some other examples of the crypto fear and greed index explained market behavior through the years, collected by the website Paxful:
😱 August 2019 (5/100): Bitcoin’s price reaches $12K and soon starts plummeting down after the 10% tariff on Chinese goods in the US.
😱 March 2020 (8/100): The pandemic brought down the Bitcoin price below $4K and fear ruled other markets as well, like the oil one.
😱 June 2021 (10/100): Bitcoin crashed after the China mining ban. Its price went from $63K to more than half of it in a few weeks. What brought it down further was Elon Musk’s crypto influence after he declared Tesla will no longer accept the crypto as a payment for their cars.
😱 January 2022 (10/100): After a crash in December 2021, Bitcoin continued to lower in price, more than half of its reached ATH in November.
🤑 July 2019 (84/100): Bitcoin started gaining more and more popularity, eventually reaching $12K due to it.
🤑 August 2020 (84/100): The market greed got higher when Bitcoin became more widely recognized as a fiat alternative, eventually lifting its price even more.
🤑 December 2020 (95/100): Institutional investors became interested in Bitcoin, pushing its price above $40K for the first time, creating a very high greed market.
🤑 February 2021 (95/100): Even more people now became interested in Bitcoin, pushing its price over $50, preparing it for its then ATH of $63K.
🤑 October 2021 (84/100): The popularity of NFTs brought new people to the crypto space and Bitcoin reached its current ATH a month later.
Crypto Fear and Greed Index Explained – Would You Use It Now?
Now that we had the crypto fear and greed index explained, would you use it? As we mentioned, the index isn’t a financial advisor or a set timer when to invest or sell. But it could be a useful tool to check out and get the general idea how other people are behaving on the crypto market and what direction they’re pushing it into. Remember that even if generally fear means buy and greed means sell, you can use it as a consultant and not as a strict guide. Follow your own strategies, do the research and trust brains first and heart later when it comes to your financial investments.