Despite yesterday’s decline, the current level of the Crypto Fear & Greed index is still significantly high.
This is an index that measures sentiment in the crypto markets, and specifically on Bitcoin.
The data of yesterday for this index, despite a decrease, is still significantly high.
Summary
How does the Fear and Greed crypto index work
The Crypto Fear & Greed Index is calculated from five sources and represents the sentiment of the previous day in the specific Bitcoin market. So, for example, today’s data refers to the sentiment in the crypto markets of yesterday.
The two main sources are the volatility of the BTC price and the trading volumes, both with a weight of 25% in the calculation of the index. Therefore, these two individual factors account for half of the value of the index itself.
However, the sentiment detected on social media is also taken into consideration, which has a weight of 15%.
Other data that are used for the calculation, but with less importance, are the dominance of Bitcoin compared to the overall value of the crypto markets’ capitalization and the trends extrapolated from Google Trends.
So it’s not just about data directly from the market, even though these have the main weight.
The fact is that the behavior of the crypto market often appears to be very emotional, influenced primarily by sentiment rather than objective numerical data from fundamentals.
For this reason, the index also takes into account non-numeric data, for example from sentiment analysis on social media.
The index can range from zero, which corresponds to extreme fear, to one hundred, which corresponds to extreme greed.
Yesterday’s decline
Starting from November 9th, the value of the Crypto Fear & Greed Index has consistently remained above 70.
This is a decidedly high level, as it is already clearly in the greed zone, but not extremely high. For example, in mid-April, with the price of Bitcoin above $30,000, it had already reached 69 points, while in November 2021 it even reached 76 points.
To be honest, however, the highest peaks date back to February 2021, when it even reached 95 points, so it never reached a hundred.
Note that last year the lowest point was not recorded when the price of BTC dropped to the annual minimum after FTX’s failure in November, but in June, when it even dropped to 6. However, the absolute minimum was reached in August 2019 when it briefly dropped to 5.
Yesterday’s data, of 67 points, is only slightly lower than Sunday’s 74, and is still in the greed zone. What is a bit surprising is that throughout 2023 it has never been in the high greed zone, as it has never exceeded 75 points. The maximum was precisely the 75 points on December 5th.
There is no excess of greed
It’s a bit strange that after a monthly increase of +12% and a +150% since the beginning of the year, there is still no excessive greed.
For example, at the beginning of February 2021, when the price levels were similar to the current ones thanks to a rise from $38,000 to $49,000, this index went from 80 to 95, which is well above the current quota of 70.
Evidently a BTC price of about $42,000 today does not surprise many people, while back then it was a complete novelty. It should be noted that at the time those were the new all-time highs, while today we are still -39% from the all-time highs.
The fact that there is greed but without excess, and that yesterday’s decline was very limited, suggests that in theory the rise in the price of Bitcoin that began at the end of October could also continue.
In other words, there seem to be conditions for further ascent, although perhaps at this moment there is a lack of a trigger capable of starting it. If such a trigger does not arrive, it is by no means certain that it can really start.
The usefulness of the Crypto Fear & Greed Index
This index is useful especially in two specific cases: when there is an excess of enthusiasm, and when there is an excess of fear.
In fact, in those two cases, it suggests that if the excess were to run out, things could change relatively soon.
Since it is an index that measures sentiment, it can actually vary very quickly, and it is not strictly related only to the price.
In addition, it particularly measures the sentiment of retail investors, and not that of institutional investors who are often more influenced by objective analysis than by emotions.
So the Crypto Fear & Greed Index also serves to measure retail sentiment, which for example at this moment is decidedly positive but without excesses.
It seems that there is not yet that real FOMO that characterizes the moments when speculative bubbles start to inflate the price of Bitcoin, and this is further evidence that in theory a rise is still possible, despite the +12% of the last 30 days.
