The Crypto Fear and Greed Index is a popular tool used to measure the emotions and sentiments of cryptocurrency market participants.
The index is designed to signal buying opportunities when the market is in extreme fear. Alternatively, to signal selling opportunities when crypto market participants become greedy.
Data Source: Fear and Greed
How is the Crypto Fear & Greed Index Measured?
The Crypto Fear and Greed Index is measured by five main sources that are updated every day as sentiment shifts in markets:
- Volatility (25%) - Bitcoin and Crypto market volatility compared to corresponding average values of previous 90 days.
- Market Volume (25%) - Whether trading volume is increasing or decreasing relative to the previous 90 days.
- Social Media (15%) - Sentiment analysis across Twitter and Reddit that assess hashtags and keywords relevant to cryptocurrency investment groups.
- Dominance (15%) - If Bitcoin dominance is rising, this generally indicates fear of risk tasking across the alt market. This is a bearish signal and gives weight to the Fear & Greed index.
- Trends (20%) - Measuring Google Trends and equivalent search data to assess whether retail and the public are interested in the asset class.
Is the Fear and Greed Index Reliable?
The Fear and Greed Index has been a reliable indicator that has predicted local bottoms for Bitcoin and the broader cryptocurrency market. That said, negative sentiment can last for a long time and just because something has worked in the past - it does not mean it will in the future.
We think it is a better indicator for when the market is frothy and becoming greedy, which can assist in timely profit taking.
I fell into crypto during the 2017 mania and have been around ever-since. I now write, research and publish my own reports on the digital asset ecosystem.