Crypto Fear and Greed Index predicts “extremely greedy” markets in 2024

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While well-researched analysis guides the decisions of market participants in the cryptocurrency world, fear and greed often determine investor actions.

Understanding and managing these emotions is critical to navigating this ever-changing market and achieving any level of success.

While one cannot accurately predict the future price movements of cryptocurrencies, tools like the Fear and Greed Index provide valuable insights for making informed decisions.

What is the Cryptocurrency Fear and Greed Index?

The price of an asset fluctuates due to changes in market fear or greed. It is said that when demand increases, the market becomes greedy, thereby increasing the value of the asset.

Conversely, an increase in fear manifests itself as a decrease in demand and price. This may create opportunities to acquire additional assets.

The Crypto Fear and Greed Index is a tool developed by Alternative.me that acts as a sentiment indicator, measuring the overall sentiment driving the cryptocurrency market.

The index generates a number ranging from 0 to 100, with a value of 1 indicating a state of extreme fear in the cryptocurrency market. Extreme fear signals a selling trend among investors, which puts downward pressure on asset values.

Conversely, a value of 100 represents extreme greed, indicating widespread buying behavior.

As a simple rule, investors often resort to selling during market downturns, expressing fear and causing asset values to fall.

On the contrary, during bull markets, the tendency to accumulate cryptocurrencies increases, indicating growing greed and leading to large price swings.

different index levels

Here is a breakdown of the various index levels in the Crypto Fear and Greed Index and their associated market sentiment:

0-24

When the index is around 0-24, the market is said to be in a state of fear. During this period, investors became extremely cautious, with most choosing to sell their holdings to minimize potential losses.

This period was also characterized by a drop in trading volumes, with market participants taking a wait-and-see approach and refusing to take any trading positions. This level usually signals that prices may continue to fall further due to increased selling pressure.

Such was the case on August 22, 2019, when the index fell to a meager 5/100, indicating that the market was in a state of extreme fear.

The decline coincided with escalating trade tensions between the United States and China, which culminated in the imposition of 10% tariffs on Chinese goods. This caused the price of Bitcoin, which had been rising for months, to fall by 16%.

Amid the COVID-19 pandemic in March 2020, the Fear and Greed Index plummeted to nearly 8/100 on March 28. Over the next two days, the price of Bitcoin fell by more than half.

In November 2022, after the sudden collapse of the FTX exchange, the Cryptocurrency Fear and Greed Index returned to a value of 12, coinciding with the time when the price of BTC fell to its lowest level in 2 months.

However, as the asset may be undervalued, this range may also provide a buying opportunity for those with a long-term investment horizon.

25-49

Another range is level 25-49. Although fear remains in the market during this range, investors are gradually becoming optimistic.

While market participants remain largely uncertain, they are adopting less risky trading strategies within the range rather than staying away entirely.

Asset prices typically fluctuate within a limited range at this index level. Short-term profit opportunities also arise when prices fluctuate.

50-74

At the 50-74 index level, optimism and excitement take center stage, causing buying momentum to surge. Trading volumes are likely to increase as investors adopt more aggressive strategies.

When demand exceeds supply, this level typically causes prices to rise rapidly. However, when buying pressure increases to unsustainable levels, the price range risks forming a market bubble.

75-100

When the index fluctuates between 75-100, the market is said to be in an extremely greedy state. This period is characterized by investors becoming overconfident and making trading decisions out of fear of missing out (FOMO).

While increased accumulation can increase asset values, markets are vulnerable to corrections or collapse when they reach unsustainable price levels.

For example, on December 31, 2020, the Fear and Greed Index ended the year at 95. Ten days later, the BTC price surged from $16,000 to $40,000, reaching a peak of $40,256 on January 10, 2021.

By February 14, 2021, the index rose to 95 again. At this point, the price of Bitcoin rose from $39,000 to a temporary high of $56,000 in two weeks.

only number How was this created?

The Fear and Greed Index collects data from five sources to measure changes in sentiment in the cryptocurrency market.

Volatility: The index tracks current volatility and maximum drawdowns and compares them to 30-day and 90-day average volatility and drawdowns. When volatility increases, markets are said to be fearful.

Momentum and Volume: The index also measures current market momentum and volume and compares it to the most recent 30/90-day average. High daily buying volumes in active markets indicate that market behavior is too greedy or bullish.

Social Media: The index tracks cryptocurrency mentions and hashtags and compares them to historical averages. When the number of mentions and hashtags increases, it represents increased market engagement.

Dominance: This index measures BTC’s dominance in the overall market. As Bitcoin’s dominance grows, the market is considered scary. Instead, sentiment is changing as altcoins start to increase their market share.

Trends: Analyzing changes in search volume and current top searches can help gauge market sentiment, according to Alternative.me. As search interest in cryptocurrencies increases, so does greed in the market.

Greed floods the market ahead of possible BTC spot ETF approval

As of this writing, the Crypto Fear and Greed Index has a value of 71, describing the market sentiment as greedy. This is due to the positive sentiment surrounding the approval of a potential BTC spot ETF.

source: alternative.me

All spot ETF applicants have submitted final applications, and a decision from the U.S. Securities and Exchange Commission (SEC) is widely expected this week.

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If regulators approve these applications, one can expect the Crypto Fear and Greed Index to plunge into extreme greed, as many are predicting a surge in BTC value upon approval.

However, markets can become overheated, leading to setbacks; therefore, caution should be exercised.