An indicator of Bitcoin market sentiment known as the ‘Fear and Greed Index’ that measures five data points suggests ‘extreme fear’ has gripped the market.
Despite potentially bullish news from the Bakkt camp and a spectacular rise in price during 2019, the always-emotional Bitcoin market is not optimistic at the moment. As the price continues to jostle around the $10,000 mark, the crushing bear market of 2018 is clearly still fresh in investors’ minds.
Fearing the Worst
Quantifying this trepidation is the Bitcoin market sentiment analysis tool known as the ‘Fear and Greed Index.’ It takes data relating to market volatility, momentum and volume, social media sentiment, weekly surveys, dominance versus the rest of the market, and Google trends to produce both a score out of 100 and a descriptor ranging from ‘Extreme Fear’ to ‘Extreme Greed.’
The reading is currently at an all-time low of these five data points equating to the extreme fear rating. This seems somewhat surprising given the fact that the index has existed throughout the bear market of last year. Even as Bitcoin was crashing down violently in early 2018, when it reached what many believed to be the ultimate bottom of the market cycle last December, the index never got to a score such a low score as it sits at now.
Interpreting the Data
Along with the daily readings, the index also provides suggestions as to how an investor might interpret the data. Clearly, those behind the Bitcoin Fear and Greed Index subscribe to the Warren Buffet school of investing since they write:
“Extreme fear can be a sign that investors are too worried. That could be a buying opportunity. When Investors are getting too greedy, that means the market is due for a correction.”
Although utterly repulsed by the very idea of Bitcoin, one of billionaire investor Warren Buffet’s most famous pieces of advice was to be “fearful when others are greedy and greedy when others are fearful.”
The Fear and Greed Index currently only provides a reading for the Bitcoin market. However, there are plans to launch the service for select, large market cap altcoins in the future. However, no date has been confirmed for such products yet.
What do you think about the Bitcoin Fear and Greed Index? Does it influence your investment strategy? Let us know your thoughts in the comments below.