Why Crypto Market Fears Reflect Volatility
Data shows that fear of the crypto market has mirrored recent market volatility, as the recent breakout in the price of Bitcoin has boosted investor sentiment.
Crypto fear and greed index escape the “extreme fear” zone.
The “Fear and Greed Index” is an indicator that tells us about the general sentiment among investors in the cryptocurrency market.
The calculation uses a numerical scale that goes from zero to one hundred to show this feeling. All values above fifty mean greed in the market, while those below the threshold indicate fear among investors.
Besides these two, there also exist two special emotions called “extreme fear” and “extreme greed.” These take place at values lower than 25 and higher than 75, respectively.
The significance of these zones is that coins like Bitcoin have historically observed bottom (extreme fear) and top (extreme greed) formations during such periods.
Now, here’s a chart from this week’s Arcane Research report showing the trend in the Crypto Fear and Greed Index over the past year:
Looks like the value of the metric has been mostly flat in recent weeks | Source: Arcane Research's The Weekly Update - Week 42, 2022
As you can see in the graph above, the Crypto Fear and Greed Index had been moving sideways in the 20 to 25 range for over a month when the report came out, which was two days ago.
During this period of stagnation, volatility in the market was quite low as Bitcoin and others had all consolidated hard.
However, in the last couple of days this has clearly changed as BTC’s price has shot up. As a result of this recent volatility, this is what the Fear and Greed Index value looks like today:
The value of the metric seems to be 32 at the moment | Source: Alternative
Sentiment in the crypto market has improved over the past two days, leaving the extreme fear zone but still in fear.
The investor mentality that mirrors volatility is not a surprise, as the two are related. The index also accounts for this, since 25% of the value depends on the volatility value.
The crypto market has been in the fear zone for almost a year now. If it stays in this range for two more weeks, investors will have seen an entire year of fear.
BTC price
At the time of writing, Bitcoin’s price is hovering around $20.5k, up 7% in the last week.
The BTC price has surged up over the last couple of days | Source: BTCUSD on TradingView
Featured image from Art Rachen on Unsplash.com, charts from TradingView.com, Arcane Research
