Data shows the Bitcoin Fear & Greed Index has dropped back deep into the extreme fear zone, signaling an effective reset of the market mood.
Bitcoin Fear & Greed Index Is Again Pointing To ‘Extreme Fear’
The “Fear & Greed Index” refers to an indicator created by Alternative that tracks the average sentiment present among traders in the Bitcoin and wider cryptocurrency markets. The metric determines the investor mentality using the data of five factors: volatility, trading volume, market cap dominance, social media sentiment, and Google Trends.
To represent the sentiment, it makes use of a numerical scale running from zero to one hundred. All values below 47 correspond to a net sentiment of fear, while those above 53 suggest the dominance of greed. Naturally, the values between these two cutoffs indicate a neutral mentality.
Besides these three zones, there are also two extreme regions known as the extreme fear (25 and under) and extreme greed (above 75). As the latest value of the Bitcoin Fear & Greed Index indicates, sentiment currently lies in one of these extreme regions.
Looks like the metric has a value of 8 at the moment | Source: Alternative
While the market is currently extremely fearful, it wasn’t the case just a few days ago; BTC’s rally above $75,000 meant that the market mood surged into the fear zone after being stuck in the extreme fear region for a month and a half.
The trend in the BTC Fear & Greed Index over the past year | Source: Alternative
The recovery proved only temporary for the cryptocurrency, though, as its price has now retraced all the way back below $69,000. This pullback could be why the Fear & Greed Index has degraded from a value of 28 to a very low one of 8 within the matter of six days.
Historically, the extreme zones have held significance for the digital assets sector, as they are where major tops and bottoms have tended to form for Bitcoin and other assets. The relationship has been an inverse one, however, meaning that extreme greed is where the market might top out while extreme fear can lead to reversals to the upside.
The Fear & Greed Index has spent a considerable amount of time in the depths of extreme fear in recent months, but whether that’s enough to reach a cyclical bottom only remains to be seen. During the 2022 bear market, it took a few months of stay inside the region before a turnaround was reached.
So far in the current cycle, the lowest that the indicator has gone is 5. Thus, at the latest value of 8, Bitcoin market sentiment is just three points away from peak despair.
BTC Price
At the time of writing, Bitcoin is floating around $68,400, down over 6.5% in the last seven days.
Looks like the price of the coin has been consolidating since early February | Source: BTCUSDT on TradingView
Featured image from Dall-E, chart from TradingView.com
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