Cryptocurrencies are volatile because investors’ sentiments like greed and fear trigger market dynamics.
The Crypto Fear and Greed Index is used to measure fear and greed levels in the cryptocurrency markets. Currently, the index stands at 29, representing fear in the market. But even with that level, countries should make Bitcoin their legal tender to utilize the success of cryptos.
This blog post will explain how the fear and greed index helps investors gauge and determine the threats and opportunities in the crypto market.
Understanding Fear and Greed Index
The index ranges from 1-100. Here is a quick breakdown.
- A score of 100 means that everyone thinks that the market is puffed-up; this means that the market is exceedingly bullish.
- A score of 50 indicates equal opposition of sentiments regarding the increase and decrease in value of cryptocurrency. It implies neutral market sentiments when trade is neither bright nor gloomy.
- The extreme optimism regarding cryptocurrency price hype leads to the greed to accumulate even more of them, thus leading to the need for potential correction in the market.
- Crypto Fear & Greed Index shows 25% weightage to market volatility. Volatility rises when markets become fearful. Trading volumes increase when markets become over-greedy.
- 25% attributes market momentum implying rapid trade volume in the market.
- Analyzing social media interactions for cryptocurrency, which composes 15 percent of the Crypto Fear and Greed Index (CFGI), determines crypto trends. A higher engagement with a specific cryptocurrency means optimism about the performance of that cryptocurrency.
- The data uses 10% weightage from Google trends analyzing searches to see which cryptocurrencies capture more interest.
- Ten percent weightage adds to the coin dominance factor. As Bitcoin prominence grows, investors are becoming warier about investing in altcoins. Currently, Bitcoin (BTC) has an overall market share of approximately 40.37% — up from 39.99%.
How Can Fear and Greed Index Help Investors?
Crypto markets are highly volatile and emotional. When the crypto trade rises, people become greedy and fear missing out. When the market is falling, people panic and sell their coins. The Fear and Greed Index tries to help investors avoid these emotions by giving them an objective measure of how much fear or greed there is in the market.
In the crypto market, investors act based on speculations and assumptions.
Intense fear suggests that investors are excessively concerned, indicating an investment opportunity.
Investors who get greedy often mean the crypto market needs correction.
Pro tip: You can easily find online resources and tools for cryptocurrency/Bitcoin fear and greed index chart, widgets, apps, and APIs.
Is it 100% Precise?
The framework for data collection consists of speculations, assumptions, social media mentions, internet searches, and buying trends.
The fear and greed charts may not be 100% precise, but they help you a great deal in making informed crypto trading decisions.
Some tools and charts highlight public sentiment for Bitcoin specifically. They may not apply to other cryptocurrencies.
Pro tip: The fear and greed tool is handy when combined with other crypto market indicator tools.
The RSI oscillator is an excellent technical analysis tool traders use to determine whether an asset is oversold or overbought. This indicator works well with the Bitcoin Fear and Greed Index because it shows when the Bitcoin is oversold (red) or overbought (green).
Regardless of what an index says, it is best to conduct thorough research before investing. Keep an eye out for new cryptocurrency developments.
Bitcoin Trade Fear and Greed Manipulation
When investors panics, they start selling their assets at rock bottom prices. For savvy investors who want to get ahead of the curve, buying Bitcoin when its price is low might be a good investment strategy.
Extreme greed is what caused the bubble. People who were not initially interested in investing became interested because of the Bitcoin hype. It led to an increase in demand for Bitcoins.
Savvy investors catch hold of the market and take profits in extreme greed situations. And eventually, the stockpile of assets causes a price drop.