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Big Profit, Crypto Market Requires Managing Greed and Fear

What is Fear & Greed in the Crypto Market

Last Month the Crypto Fear & Greed Index was at 61, last week it was at 40. Have a look at the scale below to see where it’s at today! A value of 0 means “Extreme Fear” while a value of 100 represents “Extreme Greed”. The index below shows the current consensus. analyzes sentiments and emotions from different sources and come up with one simple number. That’s the Fear & Greed Index. The index is updated daily.

Why Measure Fear and Greed?

Crypto market behavior is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in the irrational reaction of seeing red numbers. With our Fear and Greed Index, we try to save you from your own emotional overreactions. There are two simple assumptions:

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Data Sources analyzes data from the five following sources. Each data point is valued the same as the day before in order to visualize a meaningful progress in sentiment change of the crypto market.

First of all, the current index is for Bitcoin only (we offer separate indices for large altcoins soon), because a big part of it is the volatility of the coin price.

But let’s list all the different factors we’re including in the current index:

Volatility (25 %)

They measure the current volatility and max. drawdowns of bitcoin and compare it with the corresponding average values of the last 30 days and 90 days. We argue that an unusual rise in volatility is a sign of a fearful market.

Market Momentum/Volume (25%)

Also, they are measuring the current volume and market momentum (again in comparison with the last 30/90 day average values) and put those two values together. Generally, when they see high buying volumes in a positive market on a daily basis, they conclude that the market acts overly greedy / too bullish.

Social Media (15%)

While their Reddit sentiment analysis is still not in the live index (they’re still experimenting with some market-related keywords in the text processing algorithm), their twitter analysis is running. There, they gather and count posts on various hashtags for each coin (publicly, they show only those for Bitcoin) and check how fast and how many interactions they receive in certain time frames). An unusual high interaction rate results in a grown public interest in the coin and in their own eyes corresponds to greedy market behaviour.

Surveys (15%)

Together with (disclaimer: they own this site, too), quite a large public polling platform, they’re conducting weekly crypto polls and ask people how they see the market. Usually, they are seeing 2,000 – 3,000 votes on each poll, so they do get a picture of the sentiment of a group of crypto investors. They don’t give those results too much attention, but it was quite useful at the beginning of their studies. You can see some recent results here.

Dominance (10%)

The dominance of a coin resembles the market cap share of the whole crypto market. Especially for Bitcoin, they think that a rise in Bitcoin dominance is caused by a fear of (and thus a reduction of) too speculative alt-coin investments since Bitcoin is becoming more and more the safe haven of crypto. On the other side, when Bitcoin dominance shrinks, people are getting more greedy by investing in more risky alt-coins, dreaming of their chance in the next big bull run. Anyhow, analyzing the dominance for a coin other than Bitcoin, you could argue the other way round, since more interest in an alt-coin may conclude a bullish/greedy behavior for that specific coin.

Trends (10%)

They pull Google Trends data for various Bitcoin-related search queries and crunch those numbers, especially the change of search volumes as well as recommended other currently popular searches. For example, if you check Google Trends for “Bitcoin”, you can’t get much information from the search volume. But currently, you can see that there is not a rise of the query “bitcoin price manipulation” in the box of related search queries (as of 10/29/2018). This is clearly a sign of greed in the market, and uses that for their index.

Warren Buffett says, “Be Fearful When Others Are Greedy”

The popular quote “be fearful when others are greedy and greedy when others are fearful.” was the advice given by the Oracle of Omaha himself, Warren Buffet. He takes his own advice more often than not, and profits substantially on a regular basis.

How Did Warren Buffett Get So Rich?

We know that Warren Buffett knows how to pick value stocks, but not many people know how he got started. A lot of his big moves hinged on one or two big decisions that were made by corporate leaders. Everyone would like to know his secret to wealth. There are many times when he was able to access other people’s money at a discount and invest it shrewdly, and profitably.

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I am convinced that the Crypto Fear & Greed Index can help to make the right decisions when dealing with the Cryptocurrency markets. A chart showing the Crypto Fear & Greed Index for the last 2 years can be viewed here.

What is Fear and Greed in the Crypto Market?

There is a fear and greed index that is used to measure the buying and selling attitudes of investors. If the market is ready for a sell-off because it has been over bought it is considered “Greedy”. On the other hand when the market is oversold it is considered “Fearful’. As an investor it can be used to invest according to the overall market’s emotions.

Do Both the Stock Market and the Cryptocurrency Markets have a Fear and Greed Index?

Yes, both markets have investors that are emotional, there for an index of investor sentiment can be analyze.

Does the “Fear and Greed” provide Investors With Valuable Insight?

Many investors put a lot of weight on the emotions of typical investors, so, yes it can provide valuable insight when predicting market swings. There are times when the market is ‘Flat, and at those times it is hard to measure market emotion.

Featured photo by Ben Hershey

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