The Crypto Fear & Greed Index, crucial for understanding investor behavior in the cryptocurrency space, classifies Bitcoin sentiment from extreme fear to extreme greed, assigning a score between 0 and 100. Many crypto traders utilize this index to identify optimal entry and exit points in the market.
This index gauges the overall mood of the crypto market, focusing on Bitcoin and other major cryptocurrencies. It employs social signals and market trends for this purpose. The index is so named because it aggregates multiple data sources into a singular metric.
The index is segmented into four categories:
- 0-24: Extreme Fear (Orange)
- 25-49: Fear (Amber/Yellow)
- 50-74: Greed (Light Green)
- 75-100: Excessive Greed (Green)
What is the Bitcoin greed index and how is it calculated?
The crypto market’s volatility is often influenced by emotional reactions from investors. During market upswings, individuals may experience FOMO (Fear Of Missing Out), leading to greed, while downturns can spark fear, prompting them to sell.
Many investors use the Crypto Fear & Greed Index as a market indicator, leveraging it to make more informed trading decisions. Analyzing overall sentiment and the emotions driving the market has enabled numerous investors to outperform the market.
The creators of the index suggest using it to guide trading decisions:
- Extreme fear may indicate a buying opportunity, as it shows that investors are overly concerned.
- Extreme greed suggests that investors are overly enthusiastic, potentially signaling a need for market correction.
The index is calculated by Alternate.me using various sources, including volatility, market momentum/volume, social media, dominance, and trends, primarily based on Bitcoin. It also considers other major cryptocurrencies like Ethereum, which may soon be incorporated into the index.
The Crypto Fear and Greed Indicator is not necessarily indicative of long-term bull runs but rather responds to news and short-term shifts in the crypto market. Therefore, many investors primarily use it as a short-term indicator. As one might expect, it is particularly popular among traders.