Cryptocurrency Fear and Greed Market Indicator (index):
Traders use a variety of indicators to assess the current and future cryptocurrency status in the market.
Some commonly used indicators are technical analysis and fundamental analysis. However, there is a certain analysis that combines indexes as well. Basically, the indicators combine a large amount of data and cross-check to make any indication.
Crypto fear and greed index is one such indicator.
What is the Crypto Fear and Greed Index?
Cryptocurrency Fear & Greed Index is a market sentiment indicator focused on cryptocurrencies.
The sentiments are represented by a score between 0 (extreme fear) and 100 (extreme greed). The lower end (1-49) represents Fear and the upper end (50-100) represents Greed.
General market analysis indicates that during extreme fear assets are oversold and during extreme greed they are overbought. Therefore, when the index reaches extremes (0 or 100), traders can expect the market to reverse directions.
What is the Data Source?
Well, there is not one but many different types of data that collectively create a fear and greed index figure.
The data sources and their weightage according to alternative.me are as follows:
Volatility represents the rate or pace at which bitcoin changes its value. The indicator uses market data for the last 30 and 90 days. An unusual rise in volatility can lead to a fear index.
Market Volume (25%)
It represents the average trading momentum of the marker for the past 30 and 90 days. If the market experiences a high and consistent wave of the trade then there is a possibility of a greed index.
Social Media (15%)
It utilizes relevant crypto hashtags and engagement rates. The number and rate of interactions on Twitter for each bitcoin are analyzed. If Twitter is too quiet then a fearful index can be expected.
Bitcoin Dominance (15%)
It represents bitcoin dominance compared to other sectors of the bitcoin market. As Bitcoin’s dominance declines, individuals get greedier, investing in riskier alt-coins in the hopes of profiting from the next great bull run.
We believe that in particular for Bitcoin, the growth in Bitcoin dominance is due to a concern of (and consequently a reduction in) excessively speculative alt-coin investments, as Bitcoin is increasingly becoming one of the crypto’s most popular options.
On the other hand, as Bitcoin’s dominance declines, individuals get greedier, investing in riskier alt-coins in the hopes of profiting from the next great bull run.
It is currently paused but the 15% comes from the results of multiple polls where people are asked how they feel about the market. This gives an idea of crypto investors’ sentiments. This survey doesn’t affect the fear and greed index but is a useful piece of data.
Google Trends (10%)
The index uses search results related to bitcoin and other crypto-related keywords from google trends to predict market sentiments. The effect of google trends on the fear and greed index are similar to those of social media engagements.
Benefits of Using Fear & Greed Index for Crypto
To evaluate the value of cryptocurrency, traders mostly rely on facts and hard data.
The sources and types of data you can use are endless. Therefore, it is not possible to conduct thorough research and make the right decision all at once.
This is where an index comes to play. An index like the fear and greed score is a single value presented as a result of cross-checking and relating a large amount of data.
Why Measure Fear and Greed Index?
The crypto market is volatile. One of the reasons is that it’s sensitive to emotions.
People become too greedy when the market is rising, leading to FOMO (Fear of Missing Out). These sentiments determine if the market is going to be busy selling or buying crypto.
Since the impact of emotional context on the crypto market is huge, a fear and greed index helps traders make more rational decisions.
The fear and greed index is a great tool in crypto prediction. However, it is an approximate prediction, not an absolute fact. In fact, no indicator can tell you exactly how and when the market will move.
As expert providers of trading services, we recommend that you combine several indexes to get a view of the larger picture. The fear and greed index can be reliable for mostly short-term and middle-term price fluctuations.
In the end, you should choose a place to start your trading journey and allow you to make sound decisions and elevate your trading experience.