The Bitcoin ‘Fear and Greed Index’ continues to read ‘Extreme Greed’. The market sentiment analysis tool hasn’t dipped below its maximum reading since early November.
Now lasting over an entire month, the Fear and Greed Index has never spent as many days giving such a high reading. According to the creators of the index, such overwhelming investor confidence may indicate an incoming drop in bitcoin prices.
Investors still greedy as Bitcoin holds close to all-time high
The price of bitcoin rose by around 80% over the last two months. The leading cryptocurrency traded at around $10,600 on Oct. 5. Today, a single bitcoin will set you back over $19,130.
The dramatic price increase that led BTC to exceed its all-time high on some exchanges, also prompted the return of immense optimism within the cryptocurrency industry. Illustrating this is the cryptocurrency market sentiment analysis tool, the Fear and Greed Index.
The Fear and Greed Index takes its data from market volatility, momentum and volume, social media engagement, BTC dominance, and surveys. It collates these sources to produce a score out of 100, which corresponds to a general descriptor of either Extreme Fear, Fear, Neutral, Greed, or Extreme Greed.
The metric has now read Extreme Greed since Nov. 5. This is by far the longest period of such market optimism in its history.
Even the dip below $16,700 at the end of last month didn’t shake investor confidence in the market. The Fear and Greed Index remained above 86 out of 100 throughout the brief downtrend. It promptly rose again to 93. Anything over 80 represents ‘Extreme Greed’.
A Lot to be bullish about, but is the market overconfident short-term?
The recent price rise, and subsequent market confidence, appears to be driven by large-scale buying among a number of companies. They include MicroStrategy, who just added another $50 million worth of BTC to its own colossal holdings, PayPal and Square, and Grayscale.
Contributing to the abounding bullish sentiment is the increasing number of appraisals from the world of traditional finance and investing. Financial institutions like Citibank, Deutsche Bank, and JP Morgan have all expressed optimism about BTC’s future. So too have legendary investment figures, such as Paul Tudor Jones and Stan Druckenmiller.
Despite the Bitcoin industry having a lot to be confident about, the Fear and Greed Index itself suggests that BTC may be overbought – at least in the short-term. The website hosting the tool hints that such overwhelming greed may be a sign that the market is due for a correction.
Those expecting a correction base their opinion on a maxim by the famous investor, billionaire, and BTC naysayer Warren Buffett. Buffett coined the popular maxim: ‘Be fearful when others are greedy, and greedy when others are fearful’.
Unfortunately, the Fear and Greed Index has only existed since Feb. 2018. We, therefore, cannot compare the recent spell of ‘Extreme Greed’ to the last time BTC approached $20,000 in Dec. 2017. However, most analysts agree on one thing. The conditions surrounding the current price rise are entirely different from those of the former all-time high that preceded the prolonged bear market of 2018.