Everything you need to know about Crypto Fear and Greed Index

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Cryptocurrency is a very volatile asset, mainly due to the speculative nature of investments. India alone has more than 10 million users while the number of global crypto investors reached 106 million in January 2021, according to a report from Crypto.com. “The behavior of the cryptocurrency market is very emotional. People tend to go greedy when the market is going up, resulting in FOMO (fear of missing out on something). Also, people often sell their coins in (an) irrational reaction (to) seeing red numbers, ”says Alternative.me, the company that developed the Crypto Fear and Greed Index to analyze the emotions and feelings of different sources and quantify them. .

What is the Fear and Greed Index?

Based on a measure of investor sentiment towards the market, the Crypto Fear and Greed Index indicates whether the market is bullish (high) or bearish (low). “Extreme fear” means investors are very worried, but it could also mean that this is a buying opportunity. When the index indicates that investors are getting too greedy, it means the market needs to undergo a correction, according to alternative.me.

How it works?

The crypto Fear and Greed Index has scores between 0 and 100. A lower score indicates more fear in the market (the score appears in red), which means more investors are selling, causing the crypto market to fall. -coins. A higher score means that greed is high (scores appear in green) and people are buying. “When investors get too greedy, it means the market has to go through a correction,” Alternative.me says in a blog post.

“Extreme fear” is defined as a number between 0 and 24; a score of 25 to 49 indicates “fear” in the market. A score of 50 suggests a neutral condition. A score of 51-74 indicates “greed” and a score of 75-100 means “extreme greed”.

What is the index made of?

The Fear and Greed Index collects information based on volatility, volume, social media posts and coin dominance, according to Alternative.me.

Volatility represents 25 percent of the index. Bitcoin’s current volatility and maximum withdrawals are taken and compared to the corresponding average values ​​from the past 30 and 90 days. An unusual increase in volatility is a sign of a fearful market, according to alternative.me.

The volume or momentum of the market also constitutes 25 percent of the total weight. Current market volume and dynamics are measured and compared to the past 30 and 90 day averages. If there are high buying volumes on a daily basis in a positive market, the market is considered greedy or too bullish.

Social media posts are major contributors to the cryptocurrency frenzy. Social media has a 15 percent weight in the index. This data is estimated by tracking Twitter hashtags and focusing on the pace and amount of social media interactions, according to Alternative.me.

Dominance has 10 percent of the index weight. The presence or share of a coin in the market capitalization of the entire crypto market is its dominance.

According to Alternative.me, they also extract Google Trends data for various Bitcoin-related search queries and quantify it. In particular, they monitor the evolution of search volumes and other currently popular searches.

Is the index trustworthy?

The Fear and Greed Index helps to understand to some extent the state of the crypto market. But any decision to invest, hold or withdraw cannot be based solely on the index. Also look for things like fundamental analysis and technical analysis, advises Kashif Raza, founder of Bitinning, an online platform focused on crypto awareness.

“Although the index represents current sentiment, it is not an accurate predictor of future market movements. For example, the index showed ‘Extreme Greed’ (> 90) in November 2020, which usually means that investors must record profits. However, Bitcoin and the crypto market continued to post new highs over the next six months, “said Vikram Subburaj, co-founder and CEO of Giottus Cryptocurrency Exchange. Subburaj advises investors to consider other technical measures in conjunction with the Fear and Greed Index to understand how the market may perform in the near future.

On January 10, 2022, the Crypto Fear and Greed Index is 23, indicating “extreme fear” according to alternative.me.

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