The fall in Bitcoin below $ 29,000 after reaching the $ 42,000 level clearly influenced investor sentiment. This Friday, Alternative’s Fear and Greed Index plummeted 35 points to 40, suddenly moving from an extreme greed to a fear zone. This is the lowest reading of the index since early October 2020, when Bitcoin consolidated around $ 10,000.
The metric is calculated based on several characteristics, including market volatility, momentum, trading volumes, social media activity and dominance of the first cryptocurrency. In the explanation for the instrument, its creators indicate that “extreme fear” indicates that investors are too worried. This, in turn, can be the starting point for a buy-when-all-sell strategy. An interesting feature of the markets is that often traders who expected lower prices to buy, instead, after reaching them, start to open short positions.
It is true and vice versa: you can often see the markets decline when investors become too greedy. Thus, before the start of the current correction, the index was in the zone of “extreme greed” above 90 for a record time. This situation has been maintained since mid-November. On the other hand, investors who were guided by this metric alone could almost completely skip the current rally. In addition, there is still enough room to further reduce the index. For example, in March last year, against the background of the collapse of markets, it fell to around 10, that is, into the aforementioned zone of “extreme fear”. As subsequent events showed, then the time to buy cryptocurrency was good.
Galaxy Digital founder Mike Novogratz believes the market needs to calm down before moving on.
“Bitcoin has returned to zero values of rate change since the beginning of the year. Large drain. Humans are not adapted to a 150% volatility environment. This was the signal. When the volatility subsides, we will bottom, form a base and resume the rally, ”he writes.