In this article, you’ll find the crypto fear and greed index explained. This index was created to give you an idea in which direction the emotions on the cryptocurrency market are moving.
Making trading decisions based on strong emotions may lead to ill-considered choices and potential loss of capital. But emotions are always very strong when it comes to the market of digital assets. Outside factors impact all financial markets, but the cryptocurrency market is most prone to be moved by emotions, just as much as by logic.
The crypto fear and greed index exists to show you how the majority of traders are feeling at the moment and potentially, in what direction you can expect the market to turn next. While this is not a financial guide and you can’t fully base buying and selling decisions on it, it’s a very useful instrument to know about.
What Is the Crypto Fear and Greed Index Explained
With the fast-developing world and technologies, a new kind of fear emerged – the fear of missing out or FOMO. This emotion is expressed in people being afraid of missing out on certain things that could make their lives better. FOMO exists and is very powerful in the cryptocurrency market too. A trader could have one or several trading strategies and use different tools to enhance their performance. However, at one point or another, the volatility of the cryptocurrency market can prompt even the most stable trader to act based only on emotions.
FOMO makes people greedy, they don’t want to miss out on potential great profits, even if this emotion is clouding their real judgment. Fear of loss activates when the prices of cryptocurrencies start dropping and people quickly act and sell their assets. These two emotions are the reason why we will have the crypto fear and greed index explained. The purpose of the index is to provide the public what’s the broad emotion on the market, based on several criteria. Supposedly, if you see how the whole market is going, you can control your own emotions and trade better.
This is a crypto fear and greed index provided by Alternative.me that updates daily
How Does It Work? The Crypto and Greed Index Explained
The crypto fear and greed index is measured from 0 to 100. 0 means extreme fear and 100 means extreme greed. A way to read the index is:
- If the prevailing emotion is extreme fear it means that investors are worried, crypto prices are falling and it may be a moment to buy, taking advantage of the cheaper value.
- If the prevailing emotion is greed, it means investors are overly confident and the market will soon enter a correction, so it may be the moment for you to sell. If the index shows extreme greed, at 80 or above, the prices of crypto assets are likely high so it’d be smart to sell before they start falling.
The crypto fear and greed index explained here measures mainly the market sentiment for Bitcoin and other big cryptocurrencies. You can find historical data for the emotions on the market up to five years ago, just as cryptocurrencies started picking up speed. The current fear and greed index shows data for the day, yesterday, last week, and last month.
How Is Crypto Fear and Greed Index Calculated and What Affects It
The crypto greed and fear index summarizes data based on five sources. They are:
- Volatility (25%): This is calculated from the volatility and maximum drawdown of the Bitcoin price, for the last 30 and 90 days. A fearful market may be happening if volatility increases.
- Market momentum/volume (25%): This measures the current buying volume and market momentum and again compares it to the last 30 and 90 days’ avarage values. If the daily buying volumes are high it may be a sign of a greedy market.
- Social media (15%): The Twitter posts and hashtags for different cryptocurrencies are counted, as well as how quickly and how many people interacted in a certain time period. If the interaction rate is very high, the market may be greedy.
- Dominance (10%): This monitors mainly the Bitcoin dominance. If it raises, people are choosing Bitcoin over altcoins as an investment, turning to it for bigger safety. However, if the dominance lowers, people are investing in other coins and getting greedy.
- Trends (10%): Google Trends is used for this part of the data. This monitors the change of search volume and recommended similar popular searchers. Depending on how the searches changed in the selected time frame, they can indicate fear or greed between users.
Where to Find Fear and Greed Index Crypto
The crypto fear and greed index explained here is modeled after the CNNMoney stock fear and greed index. Several different websites provide the index. One of the most popular ones is Alternative.me which provides not only the index but also a historical chart for the two emotions.
Cryptocurrencytracker also provides an index and historical chart. At Coinglass you can find the index that showcases the prices of Bitcoin throughout the measured period and how it affected the measured emotions on the market.
How to Use the Crypto Fear and Greed Index Explained and Why You May Want to Do It
Now that we had the basics about the crypto fear and greed index explained, you may be wondering how exactly would it help you to trade cryptocurrencies more efficiently?
The index won’t be able to tell you the right moments to buy or sell and it’s not created for this purpose. This is a helpful guide to check the general sentiment on the market, and how the mass traders are feeling and acting. If you base your trading decisions only on the index, it’s like listening to a stranger online telling you to buy or sell some crypto asset – they may be right but it’s best to trust other judgments as well. The crypto and fear index can be used to avoid panic selling or buying due to FOMO. When you see what the majority of people are doing, you’ll be less prone to let your own emotions cloud your judgment.
The important thing to remember is that when you’re investing your money, in crypto or other assets, you should act logically and use a plan. The market conditions may change, and your fear or greed may increase, and that will influence your trading. But if you use tools like the crypto and greed index explained here, along with researched trading strategies, and think about your decisions carefully, you’re more likely to make adequate decisions.
The Latest Emotions on the Crypto Fear and Greed Index Explained
If you have been trading cryptocurrencies since last year, you may not need the crypto fear and greed index explained to you to know what the ruling emotion is at the moment. In November 2021 Bitcoin reached its current all-time high and influenced the whole market positively. However, shortly after the prices of digital assets started falling down. This was influenced by outside and inside factors and the market is yet to start recovering and potentially aim for a bull run. Experts are torn but many remain hopeful that the current fear market when people are accumulating assets at low prices, will eventually turn and the prices of cryptos will rise, potentially rewarding their investors.
Despite the hopeful predictions, the crypto fear and greed index hit its lowest level of extreme fear in May 2022. The previous similar low happened in March 2020 when the covid-19 pandemic began and the prices of cryptocurrencies reached very low levels.
In May, the extreme fear was caused by the continuous fall of the Bitcoin price when it went under $30K and the stablecoin TerraUSD lost its peg to the dollar. The latter also stripped Terra (LUNA), the cryptocurrency that relies on the stablecoins ecosystem, of 99% of its value. The events brought the index to the level of 9-14.
It seems that many people rely on the crypto fear and greed index explained here, though. As the sales of Bitcoin increased in the mentioned period, proving that many people do take advantage of fear markets to accumulate assets for cheaper.
learn about other memorable fear and greed moments on the market, we’ve summarized data, collected by the website Paxful, to present them to you.
Examples of a Fear Crypto Market
- August 2019 (5/100): The Bitcoin price reached $12K but soon started losing value after the 10% tariff on Chinese goods accepted in the USA.
- March 2020 (8/100): The pandemic brought fear to all financial markets and the Bitcoin price hit a low of $4 and more.
- June 2021 (10/100): The Bitcoin price halved from $63K due to the mining ban in China and the Elon Musk crypto comments about the lack of sustainability of the crypto and removing it as payment from Tesla.
- January 2022 (10/100): Bitcoin reached its current all-time high in November and then started dropping in price in December which continues to this day, among fluctuations.
Examples of a Greed Crypto Market
- July 2019 (84/100): Bitcoin’s popularity increased to the point of the first crypto reaching a high price of $12K.
- August 2020 (84/100): Bitcoin became more adopted as a fiat alternative and the market turned even more greedy, lifting its price.
- December 2020 (95/100): The Bitcoin price was pushed over $40K for the first time as a result of institutional interest in the crypto. The greed in the market also hit high levels
- February 2021 (95/100): The interest in Bitcoin continued in the new year, pushing its price over $50K only to reach a high price of $63K a month later, indicating the high greed market.
- October 2021 (84/100): NFTs gained a lot of popularity in 2021 which brought new people to the digital finances. This pushed the Bitcoin price to its current all-time high in November.
Crypto Fear and Greed Index Explained – Would You Use It Now?
Would you use the crypto fear and greed index explained here? The main points you can get from the index are that if the market is fearful, you may want to buy and if it gets greedy, you could sell. However, we want to establish that this is not a financial advisor. It could be used as another tool to trade more efficiently, but you shouldn’t base your trading decisions only on it, just like with any other instrument. The most efficient way of investing your capital remains through detailed research, high financial literacy, and thought-out decisions.