Data shows the Bitcoin sentiment is close to entering into the extreme greed zone. Here’s what this could mean for the cryptocurrency’s price.
Bitcoin Fear & Greed Index Has Continued To Decline Recently
The “Fear & Greed Index” is an indicator developed by Alternative that tells us about the average sentiment that traders in the Bitcoin and wider cryptocurrency market currently share.
The index uses five factors to determine this sentiment: volatility, trading volume, social media, market cap dominance, and Google Trends. The metric uses a numeric scale that runs from zero to hundred for representing the mentality.
All values of the indicator above the 53 mark suggest the presence of greed among the investors, while those below 47 imply the dominance of fear. The region in between these two thresholds correlates to a neutral sentiment.
Now, here is what the Bitcoin Fear & Greed Index is looking like right now:
As is visible above, Bitcoin Fear & Greed currently has a value of 28, meaning that the average investor is showing fear. The degree of fearfulness must also be quite notable, as this current value is pretty deep into the territory.
In fact, the latest level of the indicator is quite close to a special region called the “extreme fear.” Investors display extreme fear when the index goes under 25. There is also a similar zone for the greed side as well, which is known as “extreme greed” and occurs above 75.
During the first half of last month, the metric had been in or close to the latter region, but the recent downturn in the market has sharply degraded the sentiment to the other end of the spectrum.
Historically, Bitcoin and other cryptocurrencies have tended to show moves opposite to what the majority are expecting. The stronger the crowd’s expectation gets, the higher the probability of such a contrary move becomes.
The extreme sentiments are where the traders are leaning towards one direction too much. As such, major tops and bottoms in the asset have usually formed when the index has been in these zones.
Because of this fact, some traders prefer to buy when investors are showing extreme fear and sell during extreme greed. This trading philosophy is popularly called “contrarian investing.” Warren Buffet’s famous quote sums up the idea, “be fearful when others are greedy, and greedy when others are fearful.”
As the Bitcoin Fear & Greed index is approaching the extreme fear territory, it’s possible that the cryptocurrency could once again show profitable entry points soon, if the past is anything to go by.
BTC Price
Bitcoin has so far been unable to make too much recovery from its recent crash, as its price is still trading around $56,700.
Featured image from Dall-E, Alternative.me, chart from TradingView.com
