The Fear and Greed Index is part of a toolbox for cryptocurrency traders to gauge the emotions driving the market. It is logical to assume that when levels of excessive greed are reached, a correction awaits somewhere nearby. The index’s main drawback for those looking to project its past behavior onto the current bull market is the lack of data. The index was launched in 2018 and does not cover the most interesting period in this regard in 2017, when the price of bitcoin first approached $ 20,000.
Stillman Analyst discovered the near-perfect correlation of the index to Glassnode’s profitable exits.
The Glassnode indicator shows what percentage of bitcoin transactions went to the wallets of the holders at prices lower than the current ones. The value approaches 100% at the moment of breaking the previous historical maximum, but it can fluctuate the rest of the time, depending on the desire of investors to hold or sell cryptocurrency.
Using the Glassnode metric, the analyst found that the 2013 bull market saw two major pullbacks from extreme greed levels, the last of which resulted in a protracted bearish trend. In 2017, the market was in a state of greed most of the time, but this did not prevent it from recovering and reaching new highs after corrections.
While investors should be careful during times of heightened greed, ceilings can be ambiguous.
“The high percentage of profitable unspent transaction outputs potentially signals relatively low seller pressure and low risk of surrender. On the other hand, he may speak about the readiness of some investors to start fixing profits soon if they become too high to miss, ”analysts from Coin Metrics wrote earlier.
As a result of the recent 23% correction, the fear and greed index fell back to 73 points, and the share of profitable transaction exits fell. Nevertheless, maintaining the current values does not mean the market is ready to capitulate.
“In 2017, there were many jumps into the zone of extreme greed, and declines from it occurred only on major pullbacks in the rate. 2013 was a slightly different year when a shake-up before the second high wiped out all profits, Stillman notes. – Some data indicate the possibility of repeating the 2013 scenario, when only two peaks were recorded. In this case, the first is being formed now. ”
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