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    Anna Key

    Bitcoin Fear and Greed Index Explained

    Bitcoin fear and greed index explained

    For the first time ever since July 2021, the Bitcoin Fear and Greed Index reached its lowest ‘extreme fear’ level after prices continued to drop, according to the information provided by Bitcoin Fear. With such a rocky start of the year, investors became inclined to participate in the ‘risky digital assets’ business. 

    Why does the Fear and Greed Index matter? What does having extreme fear mean? And most importantly, should you invest right now or take it as a warning sign?

    What Is Bitcoin Fear and Greed Index?

    Developed by company Alternative.Me, the Crypto Fear and Greed Index analyzes and quantifies sentiments from different origins to show the current emotional state for crypto investors and participants on whether or not they should decide to invest, hold, or withdraw

    It does so by crunching down to a representative number from a simple meter between 0 to 100, with zero to 24 signifying Extreme Fear, 25 to 49 indicating Fear, 50 as neutral, 51 to 74 as greed, and lastly, 75 to 100 as Extreme Greed. When the number is low, it appears as a red score and indicates more fear in the market, thus investors are selling allowing for any buying opportunities. 

    The higher the score is, it shows up in green and signals that people are buying, and as they get too greedy, the market is due for some adjusting. The different factors that the index utilizes are various, ranging from volatility which makes up 25% of the index, 25% for market momentum/volume, 15% for social media, 10% dominance, and its remaining percentage (10%) in trends. 

    The Fear and Greed Index can be used to understand the highly volatile crypto market but only to an extent. Most skeptics believe it shouldn’t be the sole tool to use when deciding to invest, hold, or withdraw, as it is not an accurate predictor of market movements for the future. 

    How is Bitcoin Fear and Greed Index Level Measured?

    According to Alternative.me, the Fear and Greed Index Level is made up of five key parameters, namely volatility, market momentum, social media, dominance, and trends. Let’s take a look at each of these indicators.

    • Volatility: to analyze the fear and greed index level, the present-day coin volatility is tracked and compared with average volatility values of the last 30 and 90 days. The higher volatility is, the more fear investors are going to have. 
    • Market momentum: same as before, the present-day market momentum is tracked and compared with an average of the last 30 and 90 days. The higher buying volumes are, the more greed investors are going to portray. 
    • Social media: Twitter crypto communities are monitored and the number of interactions is analyzed. The higher the interaction rate is, the more greed it means for investors. A Reddit social media analysis is expected to be implemented soon. 
    • Dominance: the term represents the current market cap share compared to other cryptocurrencies. Let’s say BTC’s market cap share grows bigger, this may lead to investors dropping other coins due to fear. 
    • Trends: Google searches and overall Internet crypto trends are analyzed and compared to other cryptocurrencies. 

    Bitcoin Fear And Greed Index Level

    Bitcoin Fear and Greed Index Level has caused a lot of turmoil in the crypto community. As of February 1st, 2022, the index indicates ‘fear’, meaning there is little trust in Bitcoin prices at the moment.

    Bitcoin Fear & Greed Index on February 1st, 2020

    While for some low numbers could indicate a buying opportunity, others prefer to refrain from investing. Typically, however, Alternative.me advises to explore buying opportunities when the index falls below 25. Once it climbs up to 75 and more reaching ‘extreme greed’, then it is time to consider booking profits. 

    Where to Check Bitcoin Fear and Greed Index Level?

    The Fear and Greed Index Level is a Bitcoin-minded tool. Websites such as https://alternative.mehttps://www.lookintobitcoin.com and Twitter accounts like https://twitter.com/BitcoinFear can help one track the current index level of fear and greed. 

    The developers of the Fear and Greed Index Level also plan to add more larger cryptocurrencies to the list. At the moment, it is possible to monitor the current Ethereum Fear and Greed Index Level via https://twitter.com/EthereumFear

    The Fear and Greed Index Level is a useful tool for investors to avoid acting irrationally. While it is true that the tool may be helpful, the makers emphasize that investment decisions should not be made, based on the Fear and Greed Index Level alone

    FAQ

    ​​How does the Bitcoin Fear and Greed Index work?

    The Crypto Fear and Greed Index analyzes and quantifies sentiments from different sources.  It does so by crunching down to a representative number from a simple meter between 0 to 100, with zero to 24 signifying Extreme Fear, 25 to 49 indicating Fear, 50 as neutral, 51 to 74 as greed, and lastly, 75 to 100 as  Extreme Greed. 

    What is the Bitcoin Fear Index?

    As of January 20th, 2022 the Bitcoin Fear and Greed Index Level is 24, which indicates ‘extreme fear’.

    What is Greed and Fear Index?

    The Crypto Fear and Greed Index is a tool for measuring the fairness of the crypto market, comparing investors’ sentiments, and making a decision on whether one should invest, hold, or withdraw. 

    What does ‘extreme fear’ mean in crypto?

    While for some low numbers could indicate a buying opportunity, others prefer to refrain from investing. Typically, however, Alternative.me advises to explore buying opportunities when the index falls below 25. Once it climbs up to 75 and more reaching ‘extreme greed’, then it is time to consider booking profits. 

    The content of this article is for informational purposes only and should not be construed as investment advice. We ask you to do your research. This text is not a guide to action. The author's opinion may not coincide with the opinion of CoinJoy.

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