A handy tool to simplify a volatile market and better understand the movements of the bitcoin market.
When it comes to cryptocurrency and investing, the movements of the market often seem random and unpredictable. After all, if there’s anything cryptocurrency is famous for, it’s volatility. For those who deal with cryptocurrency on a daily basis, however, the volatility of the market becomes a little less surprising when you use the Bitcoin Fear and Greed Index.
What is the Bitcoin Fear and Greed Index?
The Bitcoin Fear and Greed Index is a tool that helps investors and traders analyze the market from the perspective of sentiment. It identifies the extent to which the market is becoming overly fearful or overly greedy, which is why it’s called the Fear and Greed Index.
Essentially, when the market is overly fearful, this could indicate that bitcoin is cheap or undervalued at that time, which could present a good buying opportunity. When the market is overly greedy, then, it indicates that bitcoin is expensive and could present a good selling opportunity. This is why the index is referred to as the Bitcoin Fear and Greed indicator, specifically, and it applies only to Bitcoin Fear and Greed, no other cryptocurrencies.
Now, the Bitcoin Fear and Greed Index is measured on a scale from zero to one hundred and color-coded where zero is red and one hundred is green. When the score is red and close to zero, this signals extreme fear and indicates that many bitcoin investors are concerned about the price dropping further.
When the score is green and close to one hundred, this signals extreme greed and could indicate that investors in bitcoin are excited about the price of bitcoin rising further in the future.
Specifically, a score of 0-24 indicates Extreme Fear, 25-49 Fear, 50 is Neutral, 51-74 indicates Greed in the market, and 74-100 is Extreme Greed.
While the tool is certainly useful, it should be taken with a grain of salt, as many fledgling investors have bought or sold bitcoin solely based on the number shown on the Fear and Greed Index, without other information to back up their investments.
The Bitcoin Fear and Greed Index is updated daily on several different sources. Among these are:
The current volatility of Bitcoin’s price action relative to the last month and the last three months (exceptional increases in volatility are a sign of an overly fearful market).
The momentum and buying volume of bitcoin relative to the last month and the last three months (exceptionally high buying volume can indicate that the market is becoming overly greedy).
A social media sentiment analysis relative to historical norms.
The dominance of bitcoin relative to other cryptocurrencies.
Google Trends across a range of relevant Bitcoin search terms to identify strong periods of growth or decline in Google Search history.
Top 5 Bitcoin Fear and Greed Index Trackers
There are a number of Bitcoin Fear and Greed Index trackers online, which can allow readers to keep track of the index themselves. While all Bitcoin Fear and Greed Indices use the methods outlined above to create a number on the scale, some companies believe in weighting certain factors above others, creating a few variations in the market.
Here’s our round-up of the top 5 trackers:
Alternative.me is by far the most popular and traditional tracker out there. It is simple and easy to use, which is why it is recommended for beginners, and follows the basic tenets of the Fear and Greed Index without alternate changes (as is evident with many of the trackers below).
BittsAnalytics is a much more social media-heavy tracker, so if your personal philosophy links bitcoin movements to social media more strongly than other factors, this is the tracker for you.
Zipmex is another more traditional tracker like Alternative.me. The Zipmex website offers blog posts as well as other charts to measure the Fear and Greed Index against, for instance a chart that is updated weekly and allows you to observe the price of Bitcoin against the movements of the Fear and Greed Index. While these measures may not be useful to everyone, they can be extremely impactful for experienced traders.
CNN uses several additional factors on their tracker, such as junk bonds and stock prices, making it a popular choice among investors familiar with other financial assets.
Cryptocurrency Tracker is a tracker that measures not just bitcoin’s Fear and Greed, but that of other large cryptocurrencies as well, meaning that its scale is slightly different from a more traditional tracker.
There is no “right” tracker, per se — it merely depends on the sources you trust and the philosophy you abide by, but all of the trackers above are a good place to start if you’re a beginner hoping to use the Bitcoin Fear and Greed Index in your investment decisions.
The Bitcoin Fear and Greed Index is designed to help investors better understand a volatile market. That being said, it is based entirely on historical data and cannot make future predictions, though it is a useful tool that investors can use to make their own future projections and Bitcoin decisions. While it doesn’t unveil all the mysteries of this volatile market, it certainly helps.
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Keertana Anandraj is a recent college grad living in San Francisco. When she isn’t conducting international macroeconomic research at her day job, you can find her in the spin room or planning her next adventure.
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