Bitcoin sentiment returns to neutral as price falls
Data shows that Bitcoin market sentiment has fallen to neutral today as the price of the asset has fallen below the $22,000 level.
Bitcoin fear and greed index now points to “neutral” sentiment
The “Fear and Greed Index” is an indicator that tells us about the general sentiment among investors in the Bitcoin market. The calculation uses a numerical scale that goes from 0-100 to show the sentiment.
Any value above 50 suggests that the market is greedy right now, while those below the threshold suggest that investors are fearful. Although this break may be pure in theory, the cutoff values between 46 and 54 are actually treated as a “neutral” sentiment in practice.
There are also two other special emotions, called “extreme greed” and “extreme fear.” These take place at values of the index higher than 75 and lower than 25, respectively.
The significance of the extreme sentiments is that peaks and troughs in the price of Bitcoin have historically tended to occur during periods of such mentalities. For this reason, some traders believe that it is best to buy during extreme fear (where bottoms form), while extreme greed (where tops occur) provide the ideal selling windows.
Now, here’s what the fear and greed index looks like for the current market:
The current sentiment in the BTC, as well as the wider crypto, market | Source: Alternative
As shown above, the Bitcoin Fear and Greed Index currently has a value of 48, suggesting that investors have a neutral sentiment with a slight tilt towards fear.
This is a drop in value compared to the last few days when the market had been greedy. The diagram below shows how the indicator’s value has changed over the past year.
Looks like the value of the metric has seen some decline in recent days | Source: Alternative
From the graph, it is visible that the Bitcoin fear and greed index had been at fear and extreme fear values for most of the past year. Both these fear and extreme fear streaks were actually the longest ever in the history of the indicator.
The run finally came to an end earlier this year, when the rise in the price of the cryptocurrency finally lifted investor sentiment out of the fear zone. Initially, the mentality was just neutral, but as the rally progressed, holders eventually began to embrace the bullish trend and became greedy.
After spending a few days in the greed zone, the metric has once again returned to a neutral value today as a result of the recent decline in BTC that has taken the price of the coin below $22,000.
For now, it is unclear whether the drop in sentiment is only temporary, or whether it is a sign that investors are once again hesitant about the rally’s sustainability, in which case the index could dip into fear territory before long.
BTC price
At the time of writing, Bitcoin is trading around $21,800, down 7% in the last week.
BTC seems to have seen some drawdown today | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, Charts from TradingView.com, Alternative.me
