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:
– Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
– When Investors are getting too greedy, that means the market is due for a correction.
Therefore, we analyze the current sentiment of the Bitcoin market and crunch the numbers into a simple meter from 0 to 100. Zero means “Extreme Fear”, while 100 means “Extreme Greed”. See below for further information on our data sources.
We are gathering data from the five following sources. Each data point is valued the same as the day before in order to visualize 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 %)
We’re measuring 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, we’re 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 we see high buying volumes in a positive market on a daily basis, we conclude that the market acts overly greedy / too bullish.
Social Media (15%)
While our Reddit sentiment analysis is still not in the live index (we’re still experimenting with some market-related keywords in the text processing algorithm), our twitter analysis is running. There, we gather and count posts on various hashtags for each coin (publicly, we 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 our eyes corresponds to greedy market behavior.
Together with strawpoll.com (disclaimer: we own this site, too), quite a large public polling platform, we’re conducting weekly crypto polls and ask people how they see the market. Usually, we’re seeing 2,000 – 3,000 votes on each poll, so we do get a picture of the sentiment of a group of crypto investors. We don’t give those results too much attention, but it was quite useful at the beginning of our studies. You can see some recent results here.
The dominance of a coin resembles the market cap share of the whole crypto market. Especially for Bitcoin, we 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.
We 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 currently a +1,550% rise of the query, bitcoin price manipulation“ in the box of related search queries (as of 05/29/2018). This is clearly a sign of fear in the market, and we use that for our index.
No Investment Advice
* The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website’s content as such. Alternative.me does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.
1- Do not invest in every ICO – most of them are a scam.
2- Crypto is a heavily manipulated commodity and the price can change at any moment.
3- The creation cost of a coin represents the “wholesale” price – It is always better to buy when the price is close to the creation cost.
4- Crypto has a natural cash flow that dictates the selling pressure. Like, 1800 bitcoins are mine each day so 1800 bitcoin must be bought at the current price (“means market needs new $18 millions of investment every day if the price is $10,000 to maintain the current price“).
5- Patience and timing are key to making a profit:
Buy, when the price is close to the creation cost.
Sell, when the price is way high off the creation cost.