Recently, cryptocurrency prices have started to plummet, which affects investor sentiment. This sentiment often reflects back onto the price movements. To quantify the impact of emotions on the market, the "Bitcoin Fear & Greed Index" was created.
What is the Bitcoin Fear & Greed Index?
The Fear & Greed Index is a simple daily metric formed by analyzing sentiment from various sources and data.
The index is calculated based on factors such as price trends, trading volume, social media activity, surveys, Bitcoin’s market dominance (a higher BTC dominance suggests investors are buying BTC as a safe haven, indicating greater fear), and search trends (Google search trends for Bitcoin—more searches mean higher interest, fewer searches suggest fear or lack of new investors). The level of the Fear & Greed Index can serve as one reference for investment decisions because the cryptocurrency market is highly emotional. When prices rise, people tend to become greedy, fearing they might miss out (FOMO: Fear of missing out—remember the recent hype around the Ponzi scheme game FOMO 3D? FOMO means the fear of missing out). Conversely, when prices fall, people often irrationally sell their holdings. This index provides a reference point to help predict market trends to some extent.
There are two key assumptions:
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Extreme fear can be a sign that investors are overly worried, which may present a buying opportunity.
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When investors become extremely greedy, it may signal the end of a bull market.
Therefore, we analyze Bitcoin market sentiment and represent this data on a simple scale from 0 to 100, where 0 indicates extreme fear and 100 indicates extreme greed.
