Crypto market sentiment plunges to 1-month low, what lies ahead?

Sentiment in the crypto market had been on the rise at the beginning of August, but as the month draws to a close, a market crash has pulled it back to August levels. The Fear & Greed index had earlier hit a local high of 42 as the price of bitcoin had recovered to $25,000. Since then, however, the downtrend has been heading back into fear territory.

Fear and greed index at mostly lowest level

The Crypto Fear & Greed Index has fallen to a score of 25. This puts it dangerously close to falling back into Extreme Fear territory. The reason market sentiment is so important to measure is that it can tell exactly how investors feel about the market as a whole.

Score below 20 on the Fear & Greed Index. This means that the market is in extreme fear. At times like these, investors are extremely cautious about the market and there is not much money flowing. This inadvertently leads to lower prices because there is not enough demand to meet the supply.

Total market cap above $1 trillion | Source: Crypto Total Market Cap on TradingView.com

As the score is currently at 25 from 28 the previous day, it means that the market is getting more fearful with each passing day. The last time it was this low was back at the beginning of July, and one thing that marked the beginning of July was the low market prices.

What the crypto market contains

It is always interesting to see how the market follows investor sentiment and vice versa. Since the score has gotten so low, historically, the data tells us it’s likely to continue this way for some time before there is a recovery. Normally, there is hardly a time where the Fear & Greed Index touches a score of 25 that it does not continue down into extreme fear territory before some sort of improvement is seen.

If this is the case, it is likely that the crypto market will lose more value in the coming days. A correlation between the current market and investor sentiment falling further into extreme fear will see the bitcoin price likely to fall below $20,000 and its total market cap of around $850 billion.

This follows from the caution investors had towards the market earlier in the year, even when prices were on the rise. Data from Glassnode shows that bitcoin investors did not increase their volumes during mining as they normally would.

For now, there is a caution that rests heavily on the crypto market. The bear trend was expected to continue as it had done in previous bear markets, but the upswing had taken most of the market by surprise. Most thought it was a bull trap, and therefore took a rather hands-on approach to the rally.

Featured image from African Leadership Magazine, chart from TradingView.com

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