Despite its extreme volatility and related hazards, Bitcoin remains the most popular cryptocurrency. Its value has risen dramatically this year, reaching over $68,000 in November. There are some useful tools that might assist you in determining the direction in which Bitcoin values are moving. The Bitcoin Fear and Greed Index is one of these instruments. It is based on the two most prominent emotions among investors: fear and greed.
The Factors Affecting the Bitcoin Fear and Greed Index
To assess the success of Bitcoin, this index considers many elements like volatility, social media trends, and market momentum. A scale of 0 to 100 tells us if present investors are very greedy or overly scared.
On this scale, 0 and 100 reflect the extremes of fear and greed, respectively. Investor sentiment is neutral at number 50, indicating that they are neither overly afraid nor greedy. The index is now at 25. When the price of bitcoin skyrocketed last month, the index nearly reached 80. (close to extreme greed).
Bitcoin Fear and Greed Index is 41 — Neutral
Current price: $50,795 pic.twitter.com/TF0SXjfslZ— Bitcoin Fear and Greed Index (@BitcoinFear) December 24, 2021
People react differently to changing market trends in the cryptocurrency market. When they realize that the market is increasing, they frequently become greedy. When people see red numbers, they overreact and begin selling their currency.
According to certain market gurus, strong purchasing chances arise when the bitcoin fear and greed index value falls, indicating that investors are growing fearful. They believe that when investors get greedy, buying chances diminish.
Five criteria are used to assess investor sentiment. These elements are…
Volatility
Analysts measure the current volatility figure. They compare it to figures from the previous 30 and 90 days. If the present volatility is high, it indicates that investors are concerned.
Market Momentum
Market momentum and current buying volume are tracked similarly to volatility. They are compared to the average values of the previous 30 and 90 days. If there is a high buying volume on a daily basis, it indicates that investors are currently more greedy.
The Internet of Things
All crypto-related Twitter posts are collated and counted under this metric. Each post’s hashtags are examined. The experts then examine how many interactions occurred on these posts over a specific time period. People are currently more interested in cryptocurrencies, as seen by increased interactions. It usually indicates that the investors are greedy. For the time being, the index relies solely on Twitter posts. It may soon include a Reddit Sentiment Analysis (for more information).
Trends
Bitcoin-related search results are analyzed. Their volume, popularity, and trend change are all observed. Based on popular search searches, many interpretations are created.
Dominance
Dominance denotes Bitcoin’s market cap share compared to the entire crypto market. If there is a lot of dominance, it suggests that investors are scared and aren’t investing in hazardous alt-coins. In contrast, when dominance dwindles, investors get more greedy and begin to invest in alt-coins as well.
Strawpoll.com, a popular public polling platform, also conducts weekly polls. These polls are used to analyze crypto investors’ views and current feelings. These cryptocurrency votes, however, have been halted.
Although the Bitcoin fear and greed index is still in its early stages, it can assist investors in predicting market movement to some extent.
