A notable measure of the Bitcoin and cryptocurrency market sentiment, the Fear and Greed Index, now reads ‘Extreme Greed.’ The apparent shift in sentiment follows weeks of consistent BTC gains.
The price of Bitcoin nearly hit $16,000 early on Friday. The return of such widespread optimism may indicate that a local top is near.
The Return of ‘Extreme Greed’
Recent bullish price action has inspired renewed confidence in the Bitcoin market. The popular Fear and Greed Index now reads ‘Extreme Greed.’
The fear and greed index is now at 90. We are topping out any moment now! pic.twitter.com/4doqQPdL02
— The Moon
(@TheMoonCarl) November 6, 2020
The indicator’s current reading of 90 is the highest it has reached in more than 12 months. The previous time ‘Extreme Greed’ gripped the market was during the 2019 pump that took prices to $13,000.
The Fear and Greed Index also approached levels of Extreme Greed in August of this year. However, as recently as last month, the market remained in a state of ‘Fear.’
The indicator provides something of a measure of overall market sentiment. It considers volatility, market momentum, social media sentiment, surveys, and Bitcoin dominance versus the rest of the market to produce a score out of 100.
This score is then represented as a reading of Extreme Fear, Fear, Neutrality, Greed, or Extreme Greed. The indicator draws inspiration from the famous Warren Buffet quote, “Be fearful when others are greedy, and greedy when others are fearful.”
Bitcoin Pumps Just Shy of $16,000
Inspiring the indicator’s reading of Extreme Greed is Bitcoin’s recent price action. Since the start of October, the leading digital currency has added around $5,000 to its price. Now trading at around $15,500, BTC is sitting at levels not seen in nearly three years.
Driving the price has been a mixture of positive developments as well as ongoing uncertainty in other markets. In terms of the macro outlook, COVID-19 stimulus efforts and the US Presidential election have investors looking for a safe place to park value.
In what is becoming a new trend, major publicly listed companies are starting to invest cash reserves in Bitcoin. The likes of MicroStrategy, Square, and others have announced major positions in the digital currency as a hedge against an uncertain macro picture.
Is a Top Near?
As market analyst The Moon (@TheMoonCarl) highlights above, the return of the Extreme Greed reading may indicate a local price top. The Buffett quote that inspired the indicator itself warns that overconfidence in a market often precedes a correction.
During the 2019 bullish price run, the Fear and Greed Index reached a top at 95 on June 26. The following day, according to CoinGecko, the price hit $12,996 before starting a multi-month correction that bottomed in late December at around $6,600.
However, there is nothing to suggest that any upcoming correction would be as drastic as that experienced in 2019. In fact, many traders argue that the price action that has been leading into this pump is fundamentally stronger than it was last year.
In recent videos, YouTuber and technical analyst Tone Vays has been calling for a pullback. Such corrections are important during periods of prolonged price increases as they create points of support, potentially leading to stronger moves later.