Rising Concerns Among Traders: Crypto Fear & Greed Index Shows “Extreme Fear”
Cryptocurrency from the moment of its appearance on the world financial market was widely estimated by many as a risky asset. Despite a record drop in March 2020, the digital currency rebounded from a critical low. Now cryptocurrency feels more confident amid falling stock markets. Despite this, the fear index remains high.
During the recent fall in Bitcoin prices to $3,000, the fear index reached 10 points. This is the highest rate compared to the crises that the digital currency previously faced in 2018 and 2019.
What is important to know about the Crypto Fear & Greed Index?
The Crypto Fear & Greed Index is used as an indicator to understand prevailing market sentiment. This indicator is formed based on the analysis of 6 parameters. One of the key ones is the price volatility index. Crypto Fear & Greed’s performance is also affected by market momentum and volume, social media analysis, surveys, the dominance of the bitcoin market and Google trends.
“The cryptocurrency market is saturated with emotional solutions. Active participants become greedy when the market grows. This provokes the appearance of the syndrome of lost profit (FOMO). And contrariwise: when the “players” of the crypto market see a fall in digital currency, they try to sell off their assets.”
Extreme Fear indicates that investors are worried about the current market situation. Nevertheless, this indicator can play into the hands of many novice traders and become a signal for a profitable purchase of digital currency.
Analysts use the Crypto Fear & Greed index to predict future cryptocurrency behavior. But this indicator is not absolute, it cannot accurately predict whether the market will rise or fall.
In August 2019, when the Bitcoin rate stopped at $13,970, the fear index was as low as possible. You need to carefully and scrupulously approach the Index of fear. Indicative is the situation when, with a Bitcoin exchange rate below $10,000, the fear index was below 10 points. In these conditions, those traders won who waited several weeks when the price of Bitcoin dropped even lower to the level of $6,435.
In November 2018, when the Bitcoin rate crashed to $4,000, the Fear Index also fell to a critical level of “extreme fear.” Then the panic also swept investors, and they resorted to a massive sale of Bitcoin.
Although the Fear Index remains low, the current market situation shows that Bitcoin has rebounded from the bottom and is moving towards increase.