Two days ago, on January 22, the Crypto Fear and Greed index sharply dropped to a value of forty, moving the market sentiment from “Extreme Greed” to “Fear.” The index dropped to this level for the first time since October 3, 2020, when Bitcoin was trading at around $10,500. Today the index has recovered to a level of 70.
Before dropping to forty, the Crypto Fear and Greed Index topped at ninety five on January 6, demonstrating that investors turned extremely greedy amid Bitcoin hitting the all time highs about $42,000 on January 8. The Bitcoin price subsequently had a significant correction, dipping to as low as $28,750 three days ago, on January 21.
The Crypto Fear and Greed Index has been providing a reading of’ Extreme Greed’ for months now. Often considerable Bitcoin price pullbacks haven’t dampened the enthusiasm. For the whole month of December, as well as the outset of January, just about all readings had been above 90/100. Nevertheless, after the significant correction earlier this month, scores haven’t exceeded ninety.
Back in March of 2020, the index spent several weeks hovering around the extreme fear level of 10. This recent pullback to 40 is considered a healthy sign by market technicians who warn against overly bullish buying activity which can lead to a market becoming “overbought”.
Now that the excessive bullish sentiment has been cleared from the market, conditions are more favorable for Bitcoin to resume it’s climb.
How The Crypto Fear and Greed Index Works
Volatility is used by the indicator, social media engagement, market dominance, as well as Google Trends to assess investor sentiment towards the cryptocurrency.
Like the fear and greed indexes in the classic markets, the Crypto Fear and Greed index is actually a tool which measures 2 of the main emotions that affect just how much investors are actually ready to purchase cryptocurrencies such as Bitcoin.
The extreme fear level could be an indication that investors are very worried, which may suggest an excellent buying opportunity. In comparison, when investors are actually getting overly greedy, it might be an indication that the industry is actually ready for a correction.
The Crypto Fear and Greed Index is able to separate the bullish and bearish conditions of the market by measuring the levels of perceived demand and supply of the various buyers and sellers. When the sentiment of greed is prevalent, the index measures how high the prices are when compared to other times. When the sentiment of fear is prevalent, then the prices are lower than other times.