The behavior of the crypto market is very emotional. People tend to get greedy when the market is bullish, resulting in FOMO (fear of missing out). Moreover, people often sell their coins irrationally when they see red numbers. With alternative.me ’s Fear and Greed Index , you can get an idea about Bitcoin sentiment.
Extreme fear can be a sign that investors are overly worried. That could be a buying opportunity . When investors get too greedy , that means the market is due for a correction .
In short, the current Bitcoin market sentiment is graded on a simple 0-100 scale. Zero means “extreme fear,” while 100 means “extreme greed.”
How is the index composed?
According to alternative.me the index is composed as follows: Volatility (25%), Market Momentum/Volume (25%), Social Networks (15%), Surveys (15%), Dominance (10%) and Trends (10).
Volatility : Measures the current and peak volatility. It scales Bitcoin and compares it to the average values of the past 30 days and 90 days. An unusual increase in volatility is a sign of a fearful market.
Market Momentum/Volume : They also measure the current volume and market momentum (again compared to the last 30/90 day average values) and put those two values together. Generally, when we see high buying volumes in a positive market on a daily basis, we conclude that the market is acting too greedy/too optimistic.
Social Media : They analyze Twitter posts. They count posts on various hashtags for each coin (publicly, they show only those for Bitcoin). An unusually high engagement rate results in a growing public interest in the coin, which corresponds to greedy market behavior.
Polls : Together with strawpoll.com, a fairly large public voting platform, they run weekly crypto polls, asking people how they see the market. They usually get around 2,000-3,000 votes per poll, getting a picture of market sentiment.
Minor components
Dominance : A coin's dominance resembles the market cap share of the entire crypto market. A rise in Bitcoin dominance is caused by the fear of overly speculative altcoin investments, as Bitcoin is increasingly becoming the safe haven of cryptocurrencies. On the other hand, when Bitcoin dominance is reduced, people become greedier by investing in riskier altcoins, dreaming of their chance at the next big bull run.
Trends : Data is pulled from Google Trends for various Bitcoin-related search queries and those numbers are analyzed, especially the change in search volumes.
At CriptoTendencia we have observed that more and more investors are paying attention to this index, so taking a look at it daily is not a bad idea, especially if you are a short-term trader.
