The value of the Fear and Greed index for Bitcoin is still significantly high.
This index measures the overall sentiment of the Bitcoin market from the previous day, and since the end of January it has consistently been in the greed zone, meaning greed (or enthusiasm).
The recent peak obviously occurred yesterday, thanks to the rise in the price of Bitcoin above $50,000 from the previous day.
However, it should be noted that yesterday, despite dropping below $49,000, it only decreased from 79 to 74 points.
Summary
The Fear and Greed Index of Bitcoin
This historical index, which has been in existence for several years now, measures the overall sentiment of the Bitcoin market.
It expresses a value that ranges from 0 to 100, where 0 represents extreme fear, while 100 represents extreme greed (or enthusiasm).
In history, it has never reached either the maximum or the minimum value, but sometimes it has been below 10 points or above 90.
The average value, which is 50, indicates pure neutrality, meaning neither negative nor positive sentiment.
For example, in June 2022, after the failure of Celsius, it had dropped to minimum values, specifically to only 6 points. It wasn’t a level of absolute fear, but certainly extreme fear.
Note that this level of fear was not even reached in November of the same year after the failure of FTX, when the index only dropped to 20 points.
On the other hand, in February 2021, during the speculative bubble, it reached 95 points, which is a level of not absolute greed but still extreme greed (or extreme enthusiasm). Instead, in November 2021, when the all-time high price of Bitcoin was recorded, it stopped at 85 points.
The current level of the Fear and Greed Index
Given these reference points, the current value of 74 points is indeed high but not very much. And even the 79 points from yesterday are not a truly extreme level.
However, yesterday’s 79 points are not far from the 85 in November 2021, although they are still quite distant from the 95 in February 2021.
Note that on January 24th, after the temporary drop in the price of Bitcoin below $39,000, the value of the Fear and Greed index had even fallen below 50 points, albeit slightly (48).
Moreover, being a measure of sentiment, it can also vary greatly in a very short time.
One interesting thing, however, is that the level reached yesterday had never been reached during the recent rally that brought the price first above $30,000 and then above $40,000. In other words, surpassing $50,000 has generated more enthusiasm compared to surpassing the two previous levels.
Actually, it was since November 2021 that it hadn’t approached 80 points anymore, although since January of last year it had almost always been in positive territory.
The correlation with the price of Bitcoin
Obviously, the value of this index also varies following the variations of the Bitcoin price, but the correlation is not perfect.
The direction in which the price is moving is more important than its value.
For example, at the end of April 2022, before the Terra/Luna implosion, the price of BTC was around $40,000 and the Fear and Greed index indicated a worrying level of only 23 points.
In December 2023, when the price of BTC had returned to around $40,000, it marked a diametrically opposite level of a whopping 74 points.
Or with the price of Bitcoin at $40,000, this index can indicate both extreme fear and extreme enthusiasm, depending on whether this price level is reached by going down or up.
Therefore, the Fear and Greed index of Bitcoin is not a good parameter to judge the price level of BTC, but it is for judging the sentiment that pervades its market at a given moment.
The current trend
In particular, this index allows you to get a fairly good idea of how retailers interpret the current trend in the Bitcoin market.
For example, on October 21st of last year, the index suddenly jumped from 53 to 63 points, revealing the beginning of the spread of a certain optimism. In fact, that optimism then led to an increase in buying pressure on BTC, causing the price to start rising, reaching over $30,000 by the end of the month.
At that point, the index had also risen above the 70 level, as happened again on February 9th, indicating that sentiment had shifted from positive to very positive. The price of Bitcoin between November and December 2023 then rose above $40,000.
The current trend has been practically constantly growing since January 27th, that is, since the rebound following the sell the news after the actual launch of the new ETFs on the markets.
However, this trend may have reached its peak yesterday, with the value of the Fear and Greed index rising to almost touch 80 points, although in the past the same index has shown several times to be able to remain very high for a long time.
The flaw of the Bitcoin Fear and Greed index
The Fear and Greed index, however, has a flaw: it measures things only in hindsight.
This means that it cannot be used to make predictions, but only to better interpret what has already happened.
In fact, it always and only measures the overall sentiment of the previous day, and since sentiment is very variable, even in the very short term, what happened the day before may not have any significant impact on what will happen the next day.
However, when this index measures high levels, like yesterday’s, it means that there has been a high buying pressure, and this can be useful during analysis.
On the contrary, when it measures very low levels, it means that the selling pressure has been high, and this is also a useful piece of information.
