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Fear & Greed Index of Bitcoin: What's this?

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@claudio83
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The crypto market is often troubled, there are a lot of unexpected jolts and volatility is always difficult to manage, especially for traders. I am not a trader and I do not delight in technical strategies that I do not know and I always prefer the long term strategy, even in small tranches. In the past I have tried to execute some BUY and SELL trades but I have lost capital instead of gaining it.

However, an interesting element that I often observe before making some small investments is the Fear & Greed Index of Bitcoin, a tool that collects the sentiment of the web and translates it into a number based on which it is possible to have an overview of the sentiment of users on the market trend, thus translating the possible future moves of users and therefore acting accordingly.

The Index is composed of a signaling hand in a graph that has 0 as an index of extreme fear, colored in red and 100 as an index of extreme greed, colored in green. The index therefore indicates the current situation on the market and it is possible to draw some conclusions: when the indicator indicates extreme fear, the market is usually having a decline as investors are coming to crypto. This situation is optimal for those who decide to invest in crypto and are looking for an ideal position as an entry level.

The index scale can be divided into the following categories:

  • 0-24: Extreme fear (orange)
  • 25-49: Fear (amber / yellow)
  • 50-74: Greed (light green)
  • 75-100: Extreme greed (green)

Attention: there is no certainty that if the index indicates a very low number, therefore extreme fear, the bearish trend cannot continue and investing at that moment can still mean the current loss of a part of the invested capital.

Indeed, the index indicates market sentiment but does not predict its trend.

However, it is quite intuitive that buying crypto when the market indicates extreme greed is more likely to retrace and thus it is more likely to lose capital in the short term. So for a trader who wants to increase his positions, the trend should be something like this: sell crypto when the market is greedy, buy when there is fear.

The Crypto Fear and Greed Index is just one of many indicators. Other examples include Augmento's The Bull & Bear Index and the WhaleAlert, which tracks large transfers made by whales in crypto markets. In some ways, research on a crypto asset in which to invest is heavily based on the analysis of social media, the community and public opinion. For this reason, sentiment analysis can be useful for this asset class.

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