The Crypto Fear and Greed Index provides a score of 0 to 100 for crypto market sentiment. It’s based on the CNNMoney Fear and Greed Index for analyzing the stock market.
Fear (a score of 0 to 49) indicates undervaluation and excess supply in the market. Greed (a score of 50 to 100) suggests an overvaluation of cryptocurrencies and a possible bubble.
Noticing changes in the level of fear and greed can become part of your trading strategy when choosing to enter or exit the crypto market.
When deciding if you should buy in or sell out of the crypto market, a good trader or investor will always look for supportive data. There are charts to look at, fundamentals to analyze, and market sentiment to tap into. However, studying every metric and index available isn’t the most efficient use of time. With the Crypto Fear and Greed Index, a combination of sentiment and fundamental metrics provide a glimpse of market fear and greed. While you should not rely on this indicator alone, it can help you figure out the overall feeling of the cryptocurrency markets.
What is an index?
The Crypto Fear and Greed Index is also a weighted measure of market data, but that’s where the similarities end. The Crypto Fear and Greed Index is not something you can purchase nor any kind of financial instrument. It’s just a market indicator that can complement your analysis.
What is a market indicator?
What exactly is a Fear and Greed Index?
CNNMoney originally created the Fear and Greed Index to analyze market sentiment for stocks and shares. Alternative.me have since then made their version tailored to the crypto market.
The Crypto Fear and Greed Index analyzes a basket of different trends and market indicators to determine whether the market participants are feeling greedy or fearful. A score of 0 indicates extreme fear, while 100 suggests extreme greed. A score of 50 shows the market is somewhat neutral.
How does the Crypto Fear and Greed Index work?
You can divide the index’s scale into the following categories:
- 0-24: Extreme fear (orange)
- 25-49: Fear (amber/yellow)
- 50-74: Greed (light green)
- 75-100: Extreme greed (green)
The index calculates the value by combining five different weighted market factors. Let’s take a look:
Why is the Crypto Fear and Greed Index useful?
Point 1 shows April 26, 2021, the bottom of a significant swing in the index value from 73 (Greed) to 27 (fear). Point 2 shows the start of another slide on May 12, 2021, from 68 (greed) to 26 (fear). We can see if this has matched with the crypto market by comparing these changes with the overall crypto market capitalization.
Point 1 again shows April 26 starting at $1.78 trillion (USD) before climbing up to a peak of $2.53 trillion on May 12. If you combine this with what we see above, you see a large swing in sentiment from greed to fear coinciding with a local bottom in the crypto market cap. As the market becomes more greedy, the overall market cap rises until it reaches its maximum. At the maximum, sentiment once again sharply drops.
With our example, the index has proven helpful in finding a buying opportunity and predicting a sell-off in the market. Using the index, you can check whether your emotional reactions are overblown or in line with the market. But will it always be helpful for every situation? More than likely, no.
Can I use the index for long-term analysis?
The Crypto Fear and Greed Index is a simple way to gather and summarize a whole range of fundamental and market sentiment metrics. Rather than have to do this yourself, you can rely on the indicator to track social media, Google Trends, and other statistics. If you want to include it in your analysis, consider complementing it with other metrics and indicators to get a more balanced view.