Bitcoin prices plunged deeper than anyone could have imagined over the last week. As you may have guessed, the Bitcoin Fear and Greed Index continues to read “Extreme Fear.”
According to one industry commentator, the situation could represent the perfect buying opportunity. However, there’s no telling how long the market will remain fearful, and trying to catch a falling knife has always been a fool’s errand.
Be Afraid. Be Very Afraid.
Amid some of the most dramatic moves in the history of cryptocurrency, the Bitcoin Fear and Greed Index has been consistently reading “Extreme Fear” for around four days now. The level of “Extreme Fear” has fallen to 10 at the time of writing, according to Alternative.Me’s website.
The reading comes from analysis of market volatility, momentum, social media engagement, dominance of one coin vs. the rest of the market, market surveys, and Google Trends. Those compiling it reason that traders can glean buying or selling signals from the data.
Be Greedy When Others are Fearful…
As pointed out by Alternative.Me, an extremely fearful market can indicate that investors are too worried and an asset is oversold. A price reversal may be imminent. Alternatively, an excessively greedy market can be about to correct.
In fact, one of Bitcoin’s most prolific naysayers, Warren Buffett, coined a much-repeated phrase to sum up the idea:
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Despite disagreeing on the worth of cryptocurrency, popular cryptocurrency analyst and YouTuber Ivan on Tech (@IvanOnTech) is clearly influenced by Buffett in other respects. He drew attention to the level of fear gripping the market following the crash. He describes it as:
“[An] important opportunity in the markets right now…”
It’s worth pointing out that the image in the above tweet is not representative of the actual Bitcoin Fear and Greed Index. According to the index website, the reading has never fallen quite as low as 1 since it started in February 2018.
The all-time low reading of 5 occurred on Aug. 22, 2019. That too coincided with a sizeable, although much smaller, market crash.
Whilst it’s not clear where the above image actually came from, the four days of increasing fear observed by the indicator may well represent a great buying opportunity for investors. However, Ivan’s use of the phrase “right now” seems a little questionable.
As blockchain adviser Paul Democritou points out in response, there is no telling how long the market will remain in a state of “Extreme Fear.”