The Fear and Greed Index is one of the main indicators of the state of the Bitcoin and other cryptocurrencies market. It can be used to assess possible market trends and investor sentiment. Investors are people just like everyone else. And they are also subject to emotion. Therefore, special indexes have been created to help you understand when a situation requires caution, and when you can act more boldly.
The current index of fear and greed for bitcoin and other cryptocurrencies (updated once a day):
Current Bullish and Bearish Sentiment Index:
Bitcoin Fear and Greed Index chart for all time:
American entrepreneur Warren Buffett once said, “Be careful when others are greedy and greedy when others are cautious.” This is the basis for working with the indicator in question.
Read also: instructions for buying bitcoin.
What is the Bitcoin Fear and Greed Index
The indicator allows you to measure how much the market is currently set to buy or sell an asset. For example, if the market is “greedy”, then it means that it is potentially ready for a correction or the beginning of an active sale. If the market is characterized by “fear”, then you should consider the convenient opportunities to buy the asset.
This index shows itself well both on the crypto market and on stock exchanges, since the emotions of investors in both cases are similar, and this is certainly reflected in the rates of currencies or stocks.
There is such a thing as FOMO – the fear of missing the right moment. Many people experience FOMO when the market rises and become more greedy. But the oversupply of buyers cannot last forever, and this means that the instrument is waiting for a correction.
The Bitcoin Fear and Greed Index is a number from 0 (maximum fear) to 100 (maximum greed) and is formed based on the following factors:
- Market speed (momentum) and its volume. The combination of these values allows us to draw certain conclusions – for example, a clear sign of bullish (greedy) sentiment will be a daily large number of asset purchases.
- Measurement of the current volatility of bitcoin and its maximum drawdowns, comparison with similar values within the same period. If volatility rises sharply, then this is considered a sign of “fear” in the market.
- Dominance, that is, the share of the market capitalization of BTC in the crypto market. The rise in dominance characterizes the fact that people are moving away from speculation in altcoins and into a safe haven for bitcoin. If dominance falls, this suggests that traders are moving towards investing in riskier altcoins. After this period, another bullish rally and a return of interest in BTC can be expected.
- Google Trends. Analysis of search queries related to bitcoin, changes in their number. This is one of the clear signs of rising or falling interest.
- Social networks. The index automatically analyzes keywords on Twitter, and a similar tool is planned for Reddit. This helps to quickly track the growth of public interest in the coin.
In addition, in the early stages of development, surveys of crypto investors were used to measure the fear and greed index of bitcoin, but now these results are not given much attention.
Why measure the fear and greed index
While wondering whether the price of bitcoin will go up or down, most investors feel insecure and want to see some more or less reliable indicator that will tell them the right actions. It is impossible to determine with absolute certainty what price movements will be in the near term, but the Fear and Greed Index is one of those tools that helps to make more informed decisions.
The digital asset market is heavily emotionally driven (hence the term “market sentiment”). Much depends on ordinary psychology, so being a trader is difficult.
In relation to cryptocurrencies, the fear and greed index is mainly used for bitcoin, because most often all other digital instruments correlate with it. When the BTC rate rises, many altcoins also show an upward trend, and vice versa.
Examples of work. Is the index always accurate?
Let’s look at a few examples of how the Fear and Greed Index works in relation to Bitcoin:
- June 26, 2019 – Maximum greed (namely, 95 points). It was a record high. At that moment, circumstances were indeed very favorable for the sale of the coin, since on that day BTC reached its highest value in 2019 ($ 13,000), after which it lost almost 50% of its value in six months.
- November-December 2018 – maximum fear (10-20 points). Indeed, there was no better moment to buy: BTC bounced from $ 3000-4000 and by June of the following year rose to $ 13,000, which was mentioned in the previous case.
- August – September 2018 – maximum fear (15-25 points). This is slightly better than 2018, but still quite intimidating. The jump in prices observed during this period was short-lived. The cost fell significantly only in mid-November. Thus, despite the reading of the index, it was not the best buying opportunity, as the price continued to descend for some time.
The main disadvantage of the index is that it does not have exact values. It is a compilation of data collected from various sources. Looking back and analyzing historical data, we can see that it did not always show the most profitable moments to buy or sell.
It is also noted that some have difficulty understanding the index. For example, FOMO is often confused with greed. A good advice is to take the indicator exactly as a scale that displays the ratio of purchases and sales in the market, and nothing more.
When using the index, an investor should not take it as the ultimate truth and a guide to action. This is just conveniently collected information on the basis of which you can draw your own conclusions. In addition, if you are making a decision about future investments, then the indicator is not entirely suitable as it only shows the current market sentiment.
Where to see the Bitcoin Fear and Greed Index
Bitcoin Fear and Greed Index can be viewed at the beginning of our article https://btcnewsweb.com/fear-greed-index-bitcoin-cryptocurrency/. A popular resource for viewing this indicator is the site https://alternative.me/crypto/fear-and-greed-index/
It provides an opportunity to find out details about the indicator and those criteria that are included in it, see the current state of the index, a graph of the history of previous values, and also embed the indicator on your website. The data is updated once a day.
In addition, to track bullish and bearish market sentiments, you can independently analyze the indicators collected by various aggregators. For example, the site https://app.intotheblock.com/coin/BTC displays up-to-date and detailed information about the bitcoin market: the percentages of different categories of holders, the share of large holders, the volume of large transactions. Based on several dozen criteria, the resource determines whether bulls or bears dominate the market right now.
The Bitcoin Fear and Greed Index helps to better understand market sentiment and determine what trends await it. On its basis, analysts and traders can build various hypotheses. The Fear and Greed Index is calculated by calculating the average data on trading volumes, market activity, price spread, volatility, etc. However, it cannot be called 100 percent accurate, therefore it is advisable to use other indicators, for example, moving averages, Bollinger bands, MACD … By combining different methods of analysis, you can achieve a fairly complete picture of the market.