What is the Crypto Fear and Greed Index?
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” — Warren Buffet.
Emotions drive the crypto market trends. A lot of people get greedy when the market is bullish. Similarly, they resort to panic selling when they see the value of crypto assets (primarily Bitcoin) decline sharply.
The goal behind the Crypto Fear and Greed Index is to help traders analyze the market and make informed decisions by putting the general market sentiments into perspective.
The Fear and Greed Index was created by CNNMoney, allowing traders and investors to analyze shares and stocks market sentiment at a glance. Alternative.me have since then created their version of the tool aimed at the crypto market. Let’s see how the Crypto and Fear Index works.
As of July 2021, the Crypto Fear and Greed Index only uses Bitcoin-related information. The reason behind this is BTCs significant correlation with the crypto market as a whole when it comes to price and sentiment.
How is the Crypto Fear and Greed Index calculated?
The Crypto and Greed Index can be measured on a scale of 0 to 100, whereas:
0-24 = Extreme Fear
24-49 = Fear
50-74 = Greed
75-100 = Extreme Greed
Extreme Fear is a sign that investors are too worried about the value of their assets decline sharply. However, the intense fear among investors could also mean there is a buying opportunity. Similarly, the market is due for a correction when there is excessive greed among investors.
The Crypto Fear and Greed Index provides the numbers by combining five different market factors as follows:
Volatility (25%)
It considers the current Bitcoin price and compares it with the average Bitcoin price from the last 30 to 90 days. Volatility can be viewed as a sign of uncertainty and extreme fear in the market among investors.
Market Momentum/Volume (25%)
Bitcoin’s current trading volume and market momentum are compared to that of the last 30 and 90-day average values and then put together. High buying volumes daily can be considered a sign of a bullish or greedy market.
Social Media (15%)
The social media factor plays an important role in measuring the Crypto Fear and Greed Index. It combines the number of Twitter tweets tagged under specific hashtags (primarily #Bitcoin) and the rate at which users tweet using that hashtag. A consistent and unusual rise in interaction is usually a sign of a greedy market.
Bitcoin Dominance (10%)
Bitcoin dominance resembles the cap share of the entire crypto market. It can signify the growing fear of altcoin investments and the possible reallocation of altcoin investments into Bitcoin.
Google Trends data (10%)
It captures Google Trends data related to various Bitcoin-related search queries. It also considers factors such as increase or decrease in search volumes for specific search terms such as “Bitcoin” or “Bitcoin price manipulation.” More people searching for “Bitcoin price manipulation” can signify extreme fear in the market.
Surveys (15%)
Surveys account for 15% of the Crypto Fear and Greed Index. It combines data sourced from a large public polling platform. As of now, this factor is not taken into consideration when measuring the Crypto Fear and Greed Index.
Closing Thoughts
The Crypto Fear and Greed Index is an easy way to analyze the current market trends, courtesy of various market sentiment metrics and indicators. However, predict the change from a bull to a bear market (or vice versa) based on the Crypto Fear and Greed Index alone is complicated and unreliable. Therefore, these metrics and indicators are not likely to help you make long-term investment decisions. You must do your own research (DYOR) through technical and fundamental analysis of the market data before investing money into cryptos.
