What Is the Crypto Fear and Greed Index?

HIGHLIGHTS

• The Crypto Fear & Greed Index is measured on a scale of 0 to 100.
• Like any other metrics, lower scores mean fear in the market.
• Anywhere between 51 and 74 would showcase the greed intent the in the market. Anything above a score of 75 is termed as Extreme Greed.

With cryptocurrencies being such a volatile commodity, it’s bound to happen some sort of fear as well greed inculcating into the minds of investors. The crypto crash in May this year or for that matter today, is bound to put some doubts or fear in the minds of the investors as to what they should do. A higher rally that of say Bitcoin reaching a high of $65,000 in April is bound to put some amount of greed within the investors.

The Crypto Fear and Greed Index is considered to be a term that is loosely borrowed from the CNNMoney’s stock market Fear & Greed Index.

How does Fear and Greed Index work?

The Crypto Fear & Greed Index is measured on a scale of 0 to 100. Like any other metrics, lower scores mean fear in the market. Now this could be due to a market crash or due to the recent poor run or due to low volume being generated in a particular cryptocurrency.

The higher score would indicate the greed has started to run amok within the market wherein the investors are betting high with an aim to pocket profits. Extreme Fear come under the score anywhere between 0 and 24. It becomes Fear if it ranges anything between 25 and 49.

Anywhere between 51 and 74 would showcase the greed intent the in the market. Anything above a score of 75 is termed as Extreme Greed. It is in the score of extreme fear that many participants do the distress settling, which can further create a dip in the market. This also presents an ideal investor who are looking to buying the dip and pocket a particular crypto for a cheap rate.

What happens when the Extreme Greed Kicks in?

Investors come to the market with a view of making long-term investment and earn smart RoIs on their money. When the measure of extreme greed (i.e. score of above 75) kicks in, market participants find it an ideal opportunity to make profits by selling when the market is at a peak. Having said that, it’s important to note that one needs to be cautious about it.

The Crypto Fear and Greed Index is considered to be a term that is loosely borrowed from the CNNMoney’s stock market Fear & Greed Index.

What Does the Crypto Fear and Greed Index Measure?

Alternative.me lists out five criteria upon which the Crypto Fear and Greed Index is measured. They are:

• Volatility: The market volatility accounts for 25% of the index. It is largely based on the current price of Bitcoin and measures it against a 30 to 90-day period averages. This primarily gives an idea of the fear in the market.

• Market Momentum: How the cryptos have moved also gives a fair indication of market situation. The market volume/ momentum accounts for 25% of the index and this too is measured against the Bitcoin’s movement to decide whether the market is burdened with greed in the market.

• Social Media influence: We cannot deny social media does play a role in influencing cryptocurrencies. Prime example of it would be the Elon Musk and how it affected the prices of Bitcoin. The hashtags indicate the number and speed of interactions over a particular platform. Higher the interaction, higher the greed factor and vice-versa. This accounts for the 15% of the index.

• Market Dominance: Bitcoin’s market dominance is unparallel. A growing dominance of a particular crypto, Solano, for example, is an ideal situation how people are opting for risky altcoins instead of preferring to opt for safe ones like Bitcoin or Ethereum.

• Google trends: Google trends accounts for 10% of the data wherein people search for a particular coin and track its movements. Now this could be due to a price drop or a rally or it could purely because that coin or token has been in news for good reasons or bad reasons.

The remaining 15% of the Crypto Fear & Greed Index is largely because of the paused market as it hasn’t moved much and preferring to stay neutral. However, it’s not clearly known how the other percentages are affected.