Anika Begay
Data shows that the Bitcoin Fear & Greed Index is just outside the entrance to extreme greed territory following the latest BTC price crash.
The Bitcoin Fear & Greed Index is currently in the middle of fear region
The “Fear & Greed Index” is an indicator created by Alternative that essentially tells us how the average trader feels about Bitcoin and the cryptocurrency market in general at the moment.
This indicator determines sentiment using data from the following five factors: volatility, trading volume, social media sentiment, market cap dominance, and Google Trends.
To represent this mindset, a simple scale from zero to one hundred is used. All values above the limit of 53 imply the presence of greed among investors, while those below 47 suggest fear in the market. The region between these two thresholds corresponds to a neutral sentiment.
Here is what the Bitcoin Fear & Greed Index currently looks like:
The value of the metric appears to be 26 at the moment | Source: Alternative
As you can see above, the Bitcoin Fear & Greed Index is currently at 26, which suggests that the market is deep into fear territory. In fact, this level is almost deep enough to qualify for a special zone called extreme fear.
Extreme fear occurs when the index falls below 25 and corresponds to an intense bearish sentiment in the market. There is a similar zone for the greed side, called extreme greed, which occurs above 75.
Interestingly, just a week ago the Bitcoin market was on the edge of this latter region, but now it is already at the opposite end of the spectrum, as the chart below shows.
Looks like the value of the index has seen a steep drop in recent days | Source: Alternative
The reason behind this sharp change in market sentiment is of course the bearish trajectory that BTC has been on over the past week, including the plunge that occurred in the last 24 hours.
From the chart, however, it is clear that the market’s greedy sentiment towards the end of July was only reached after a similarly sharp reversal of the indicator from fear levels similar to those currently present.
Those lows in the first half of July had marked a low for activity, and as it turned out, the near-extremely high values at the end of the month had marked a high.
This pattern is actually something that has been observed historically; Bitcoin has tended to move in the opposite direction to what the crowd was expecting. These counter-moves have usually been the most likely to occur within extreme zones, as market anticipation is strongest there.
However, given that the last two reversals occurred just outside of these zones, it is possible that another reversal could occur for the cryptocurrency, even at this almost extremely worrying level.
It now remains to be seen how sentiment among Bitcoin investors will evolve in the coming days and whether there will be a drop into the extreme fear zone.
BTC Price
After dropping below $50,000, Bitcoin has shown some recovery and its price is now trading around $54,800.
The price of the coin appears to have shown a bounce since its low | Source: BTCUSD on TradingView
Featured image by Dall-E, Alternative.me, chart by TradingView.com
