To feel the pulse of the market, crypto traders usually rely on three very important ways of analysis. One is fundamental knowledge about the asset. Second is the technical analysis. It is fairly detailed, full of mathematical calculations and quite complicated to understand. The last one in the mix is sentimental analysis. This type of analysis is much simpler to understand as it depends on the market reaction to the news and overall situation of the crypto world. Crypto Fear and Greed Index can be considered as a tool to measure the impact of top influencers tweets. How do people react to Elon Musk’s latest tweet about Dogecoin, for example? Is it turning the tide in a positive or negative direction? Pretty difficult to gauge without the right tool. This is exactly where Crypto Fear and Greed Index comes in. It is a sentimental analysis tool, used to measure the current state of the market in terms of traders’ emotional reaction.
To begin understanding the Crypto Fear and Greed Index, it is important to know what makes it a necessary tool. The index provides an insight into the general feeling of the market. When the index is showing a high value, it means that the investors feel confident and are buying more. However, if the index shows a lower value, it is possible that investors feel scared and there is more of a selling sentiment across markets.
The values are measured from 0-100. Lower scores represent fear and higher scores represent greed.
- A value of 0-24 represents “extreme fear,” meaning that investors are selling and exiting the market.
- The range of 25-49 represents “fear”. This could mean that a fair amount of investors are selling and market interest remains neutral.
- A value of 50-74 represents “greed,” meaning that there is a decent amount of buying. It could lead to a rise in prices.
- Value from 75 to 100 represents “extreme greed”. This value indicates an extremely volatile market and the potential for a market “bubble”.
The most popular index can be found by alternative.me. For the chart below, you can see that the crypto fear and greed index value is 28, indicating ‘Fear’ and an orange colour on the spectrum as represented below.
However, there are other sources that also show the same data in a different format. For example, LookIntoBitcoin also shows the value of the index as 28. The data is presented over a time-price graph to show the performance of the index over time. Simply put, you could be referring to any crypto fear and greed index given by a credible source and at a given time, these will show similar results since they are calculated based on the same factors which we will discuss further.
How is the Crypto Fear and Greed Index Calculated?
To calculate the market sentiment and give out the crypto fear and greed index value, data analytics platforms use the following measures:
- Volatility: When the market becomes more volatile, it is possible that the fear factor rises. In the example of bitcoin, the index measures the maximum drawdowns of bitcoin and compares it with the corresponding average values of the preceding 30 days and 90 days.
- Social Media: Platforms like Twitter, Facebook, Instagram, Reddit and Telegram are active hotspots of conversation around crypto. On such platforms, data is gathered and posts with various hashtags for each coin are counted. It is also important to check how frequent or fast these interactions are taking place to determine how ‘active’ they are. When there is an unusually high positive interaction around a coin, it means that the market is moving towards a more greedy phase.
- Momentum/Volume: For giving the final index value it is important to measure the current volume and market momentum. When the buying volumes are higher than the overall momentum, it could be considered that the market is getting greedy.
- Surveys: Many data analytics platforms collect trader insight data which include polls and surveys about their perspective on the market. This helps them get a picture of the sentiment of a group of crypto investors.
- Dominance: In the case of Bitcoin, the rise in the dominance of the coin is considered indicative of the speculation around altcoin investments. If Bitcoin dominance goes lower, people might be getting more greedy and risk-taking in terms of altcoin investments.
- Trends: Google trends and search data is key in understanding the focus of the traders and investors. If there is a large search volume under the cryptocurrency topic and specific keywords related to coins, it could be indicative of growth or decline of interest. However, based on specific search terms it is easy to spot whether the market is turning towards fear or greed.
How to Read Crypto Fear and Greed Index Historical Data
Looking over the long term data of crypto fear and greed index helps us understand the fluctuations of the overall market sentiment vis-à-vis the price of Bitcoin. This could be helpful in exploring price-fear correlation and further make future predictions.
Have a look at this crypto fear and greed index chart over the last four years. It is easy to see that the high value points correlate with sudden rise in Bitcoin price in 2020 and then hitting the All Time High in 2021. To revise, the higher the value, the more the greed is in the market. The highest point that the value has reached is 95, on 18th December, 2020.
Reading the crypto fear and greed index historical data (Bitcoin and Ether) is rather easy via sources like alternative.me. These platforms allow you to have a look at the past week, month, year’s data of index values. When you match these with the price data provided by sources like coinmarketcap.com, it is easy to draw correlations and carry out a fuller analysis.
Bitcoin and altcoins are volatile assets. Interestingly, they also share a dynamic among each other. One event related to a certain cryptocurrency could affect all the others. That is what makes studying and understanding the overall market sentiment a worthwhile endeavor. Greed and fear index crypto is a culmination of many contributing factors. Volume of trade, social media conversations, google trends data, etc. are all important tools which are studied to arrive at the value of the index. This also gives us an idea of the channels to monitor as a trader. Eventually, to make wise trading decisions, one needs to learn to keep up with the top news of the crypto town and also act at the right moment to reap profits.
Please note that this is not trading advice. We recommend you to carry out your own research before making any trading decisions. This article is for informational purposes only.