Despite its high volatility and associated risks, Bitcoin is still considered the most popular cryptocurrency to date. This year, its price took a wild ride and reached over $68,000 in November. There are some useful tools that can help you understand in which direction Bitcoin prices are moving. One of these tools is called the Bitcoin Fear and Greed Index. It is based on investors’ two most common emotions – fear and greed.
Bitcoin Fear and Greed Index – The Factors
This index takes different factors such as volatility, social media trends, and market momentum into account to determine the performance of Bitcoin. It informs us as to whether current investors are too greedy, or too fearful on a scale of 0 to 100.
On this scale, 0 and 100 are two extremes that represent fear and greed, respectively. Number 50 indicates that investors’ sentiments are neutral, meaning they are neither too fearful nor too greedy. Currently, the index is at 25. Last month, when the bitcoin price sky-rocketed, the index reached nearly 80 (close to extreme greed).
In the crypto market, people show different reactions to changing market trends. They usually become greedy when they see that the market is rising. They overreact and start selling their coins when they see red numbers.
Some market experts believe that good buying opportunities come when the bitcoin fear and greed index value drops, meaning when investors are becoming fearful. They think that buying opportunities reduce when investors become greedy.
Investor sentiments are analysed using 5 factors. These factors are…
Volatility
Analyzers measure the current volatility value. They compare it with values of the past 30 days and 90 days. If the current volatility is high, it means investors are fearful.
Market Momentum
Like volatility, market momentum and the current buying volume are tracked. They are compared with the average values of the last 30 days and 90 days. If there is a high buying volume on a daily basis, it means investors are greedier at the moment.
Social Media
Under this measure, all crypto related Twitter posts are gathered, and counted. Hashtags per post are analysed. Then experts analyse how many interactions happened on these posts in a certain time duration. More interactions indicate that people are currently more interested in cryptocurrency. It generally means investors are greedy. Currently, the index uses only Twitter posts. A Reddit Sentiment Analysis (more info) may be added to it soon.
Trends
Search results related to Bitcoin are analysed. Their volume, popularity, and change in trend are observed. Different interpretations are made based on popular search queries.
Dominance
Dominance indicates the market cap share of Bitcoin compared to the whole crypto market. If there is high dominance, it means investors have become fearful and are not investing in risky alt-coins. In contrast, when dominance reduces, investors become greedier and start investing in alt-coins too.
Weekly polls are also conducted on strawpoll.com, which is a popular public polling platform. Views and current sentiments of crypto investors are analysed through these polls. However, these crypto polls are now on hold.
The Bitcoin fear and greed index is still developing, but it can help investors predict market movement to some extent.
For more information about what coins to invest in 2022, check out this article from FiretheBoss.com.
Last Updated: December 17, 2021
