Each day, we analyze emotions and feelings from different sources and condense it into one simple number: The Fear and Greed Index for Bitcoin and other major crypto currencies in the market.
This is a graph of the Fear and Greed Index over time, where a value of 0 means “Extreme Fear” (Extreme Fear) while a value of 100 represents “Extreme Greed” (Extreme Greed).
The Crypto Fear & Greed Index provides a score of 0 to 100 for virtual currency market sentiment. It is based on the “CNNMoney Fear and Greed Index” for stock market analysis.
The “Fear” (score from 0 to 49) indicates undervaluation and oversupply in the market. “Greed” (score from 50 to 100) suggests overvaluation of cryptocurrencies and a possible bubble.
Observing changes in the level of fear and greed can be an interesting trading strategy when choosing to enter or exit cryptoactive market positions. See more information below:
In the virtual currency market, when choosing to buy or sell, a good investor will always look for supporting data. You can examine the charts, analyze and interpret fundamentals, and explore market sentiment.
However, studying all the existing metrics and indexes would not be a very efficient use of your time. With the Fear and Greed Index, the combination of sentiment analysis and fundamental metrics provides insight into the market's fear and greed factors.
We do not recommend relying on this indicator alone, but it can help you to interpret the general sentiment of virtual currency markets.
O common, an index collects data from multiple sources and combines them into a single statistical measure. You may have heard of the Dow Jones Industrial Average (DJI), a famous stock market index.
The Dow Jones Industrial Average is a price-weighted combination of 30 major companies listed on various US stock exchanges. Investors can buy DJI to get a combined exposure to the shares of these companies.
The Crypto Fear and Greed Index is also a market-weighted measure, but that's where the similarities end. You cannot buy the Crypto Fear & Greed Index and it is not a financial instrument of any kind. It is just a market indicator used to complement the analysis.
Market indicators facilitate the analysis of market data for Investors and Traders. Indicators exist in all aspects for market analysis: technical analysis, fundamental analysis and sentiment analysis. If you used technical analysis, you probably already have some experience with indicators.
They range from simple moving averages to complex graphical patterns such as Ichimoku clouds. Technical Analysis indicators assess prices, trading volume and other statistical trends.
Fundamental analysis indicators have different approaches. When you research a currency or stock, you are essentially trying to determine the underlying fundamental value of the asset.
For example, your search might include the number of users and the total market value, combined into a single indicator.
In addition, we have market sentiment indicators that measure the sentiments and opinions of investors and traders.
The Crypto Fear and Greed Index is just one of many indices. Other examples include “The Bull & Bear Index” for Raises and the Whale Alert which tracks large transfers from whales in active crypto markets.
In some ways, cryptographic research relies heavily on social media, community and public opinion analysis. Therefore, analysis of market sentiment can be useful for this asset class.
Originally, CNNMoney created the Fear and Greed Index to analyze market sentiment towards equities. Later, Alternative.me created its version adapted for the cryptographic currency market.
The Crypto Fear and Greed Index analyzes a set of different market trends and indicators in an attempt to determine whether market participants are feeling greedy or fearful.
A score of 0 indicates maximum fear, while 100 suggests a feeling of maximum greed. A score of 50 indicates market neutrality.
A fearful market can be an indication that virtual currencies are undervalued. A feeling of excessive fear in a market can lead to overselling and excessive panic.
Fear does not necessarily mean that the market has entered a long period of downtrend. We can think of it as a short- or medium-term benchmark for general market sentiment.
The existence of the feeling of greed in the market is the opposite situation. If investors are greedy, there is the possibility of overvaluation and formation of bubbles.
Imagine a situation where the FOMO (fear of missing out) make the iinvestors boost the markets by overvaluing the price of Bitcoin. In other words, increased greed can lead to excess demand, artificially inflating the price.
As of July 2021, the Cripto Fear and Greed Index uses only Bitcoin-related information.
The reason is the huge correlation of Bitcoin with the virtual currency market as a whole, in terms of price and sentiment. There are future plans to add other major currencies, likely including ETH.
The index calculates value by combining five market-weighted factors. Let's check them out:
1. Volatility (25% of the index). Volatility measures the relationship of the current value of the BTC with the averages of the last 30 and 90 days. At this point, the index uses volatility as a proxy for the uncertainty present in the market.
2. Momentum/market volume (25% of the index). The current Bitcoin trade volume and market momentum are compared to the average values for the last 30 and 90 days and then combined. The occurrence of constant high-volume purchases suggests a positive or greedy market sentiment.
3. Media (15% of the index). This factor analyzes the number of Bitcoin-related Twitter hashtags and, more specifically, their interaction rate. Usually, a constant and excessively high amount of interactions is more related to the market's greed than to the feeling of fear.
4. Bitcoin domain (10% of the content). This factor measures the dominance of Bitcoin in the market. An increase in Bitcoin's market dominance factor shows new investments in the currency and the possible reallocation of funds from altcoins.
5. Google Trends (10% of the index). By looking at Google Trends data for Bitcoin-related searches, the index can provide insight into market sentiment. For example, an increase in searches for the “Bitcoin scam” would indicate a sense of fear in the market.
6. Search results (15% of the index). This factor was suspended for some time. More detailed information below.
The Crypto Greed and Fear Index can be a valuable tool for assessing changes in market sentiment. Large swings can provide an opportunity to enter or exit before the rest of the market follows the trend.
We can see a brief example of this by looking at the last three months of the total market capitalization value of the virtual currency market versus the index numbers.
Point 1, on April 26, 2021, shows the value of a significant fluctuation in the index, from 73 (greed) to 27 (fear). Point 2 on the graph shows the start of another fluctuation, on May 12, 2021, from 68 (greed) to 26 (fear).
We can see if this is reflected in the virtual currency market by comparing these changes with the total value of the cryptographic market capitalization.
Point 1 again shows April 26, with a value of $1,78 trillion (USD) before peaking at $2,53 trillion on May 12th. If we combine this with what we saw above, we have a big swing in sentiment (from greed to fear), coinciding with a lower point in virtual currency market capitalization.
As the market becomes more greedy, the total value of the market cap increases until it reaches its maximum value. At the peak, the feeling drops dramatically once more.
In this example, the index proved useful for identifying a buying opportunity and for predicting a market downturn. Using the index, you can see if your emotional reactions are exaggerated or in line with the market. Will the index always be useful for all situations? Most likely not.
The indicator does not work so well in long term analysis of virtual currency market cycles. In an uptrend (bull) or downtrend (bear), there are multiple cycles of fear and greed.
These cycles offer good opportunities for swing traders. However, for investors who want to keep their assets, it is difficult to predict the market trend change using this index alone.
You will need to analyze other aspects of the market to gain a better long-term perspective.
In general, it is recommended that you do not use just one indicator or one analysis style. Be sure to do your own research before investing. And remember, invest only what you can afford to lose.
We are collecting data from the following five sources. Each data point is valued in the same way as the day before, in order to visualize significant progress in changing cryptographic market sentiment.
First, the current index is just for bitcoin, because a big part of it is currency price volatility.
But let's list all the different factors that we're including in the current index:
We are measuring the current volatility and maximum bitcoin drawdowns and compared them to the corresponding average values for the last 30 days and 90 days. We argue that an unusual increase in volatility is a sign of a fearful market.
In addition, we are measuring current volume and market dynamics (again compared to the last 30/90 day average values) and we put these two values together.
Generally, when we see large buying volumes in a positive market on a daily basis, we conclude that the market is acting too greedy/too high.
While our red sentiment analysis isn't in the live index yet (we're still trying out some market-related keywords in the word processing algorithm), our twitter analysis is running.
There, we gather and count messages in various hashtags for each currency (publicly, we only show Bitcoin ones) and check how fast and how many interactions they receive in certain periods of time).
An unusually high rate of interaction results in a growing public interest in the currency and, in our eyes, corresponds to greedy market behavior.
Along with strawpoll.com a very large public voting platform, we are conducting weekly cryptographic surveys and asking people how they see the market.
We typically see 2.000 to 3.000 votes in each poll, so we get a picture of the sentiment of a group of cryptocurrency investors.
We don't pay much attention to these results, but this was very helpful at the beginning of our studies.
The dominance of a currency resembles the market share of the cryptocurrency market. Especially for Bitcoin, we think that the rise of Bitcoin dominance is caused by the fear of (thus a reduction of) very speculative altcoin investments, as Bitcoin is increasingly becoming the safe haven of cryptocurrencies.
On the other hand, when Bitcoin dominance wanes, people are getting more greedy investing in riskier altcoins, dreaming of their chance in the next big bull market race.
Anyway, analyzing the dominance of a non-Bitcoin currency, you could argue the opposite, as more interest in an altcoin can lead to bullish/greedy behavior for that particular currency.
We pulled Google Trends data for various Bitcoin-related search queries and compressed these numbers, especially changing search volumes, as well as recommending other currently popular searches.
For example, if you check Google Trends for “Bitcoin”, you will not be able to get much information from the search volume.
But currently, you can see that there is currently a +1.550% increase of the query “bitcoin price manipulation” in the related search queries box (as of 29/05/2018). This is clearly a sign of fear in the market, and we use it for our index.
The Crypto Greed and Fear Index (CFGI) is a simple way to gather information and assess a wide range of fundamental and performance metrics. market sentiment.
Instead of having to do this yourself, you can use the indicator to track social media, Google Trends search trends, and other relevant statistics. For your analysis, consider using this index in conjunction with other metrics and indicators to gain a broader view.