The Fear & Greed Index has been used for many years to measure market sentiment. Originally for the stock market, but now also for the crypto market. It attempts to gauge the mood of investors in the market and can be a tool for investors to factor into their decisions.
Fear and greed
People tend to become very greedy when prices increase. In contrast, they become fearful or negative when the market is in the red. The Fear & Greed Index can also be in the middle, in which case sentiment is considered neutral.
Sentiment is very important in cryptocurrency markets. After all, people like to watch (and imitate) what others are doing.
How is the score calculated?
The Index collects all kinds of data on market sentiment and aggregates it into a score. This score is updated daily. Among other things, the following data is included in the score:
- Volatility of the Bitcoin exchange rate
- Volume of transactions
- Sentiment on social media
- Bitcoin dominance against altcoins
- Data about the amount of searches in Google
Interpreting the score
The Crypto Fear & Greed Index is scored between 1 and 100, with 1 being the lowest. Below 25 it indicates "extreme fear", and above 75 is considered "extreme greed".
A famous quote by master investor Warren Buffett is "Buy when there is blood in the streets". Many investors therefore follow this strategy and buy when there is fear, and sell when there is greed.
However, as mentioned above, many others, on the contrary, watch each other and buy when others are also buying. After all, psychology plays a big role in investing.
What is the smartest move? No one knows. Sometimes greed is justified. Sometimes fear is justified. And no one has a crystal ball. The Fear & Greed Index is only an indication of market sentiment and not a buy or sell signal.
The information provided in our articles is intended solely for general informational purposes and does not constitute (financial) advice.