Data shows that investors in the Bitcoin market have become greedy for the first time since March 2022, after the longest period of fear on record.
Bitcoin Fear And Greed Index Now Points To “Greed”
The “fear and greed indexis an indicator that tells us about the general sentiment among investors in the Bitcoin (as well as the broader crypto) market. To represent this feeling, the metric uses a numerical scale that runs from 0-100.
Any readings below 50 imply an anxious market, while readings above this threshold suggest greedy holders. While this cut-off point looks clean in theory, in practice the range between values of 46 and 54 is generally considered to belong to a ‘neutral’ sentiment. True breakouts toward fear or greed only occur when the metric falls below or above this transitional area.
There are also two other “special” feelings: extreme greed and extreme anxiety. The former happens above values of 75, while the latter happens below values of 25. The significance of these extreme sentiments is that tops and bottoms historically tend to form when the investors held this mindset.
Therefore, some traders believe that periods of extreme fear provide ideal buying opportunities (since bottoms have occurred here), while times of extreme greed can be the best selling periods (since tops occur here).
A trading strategy called “contradictory investing” is based on a similar idea. As Warren Buffet said in his famous quote, “Be afraid when others are greedy, and greedy when others are afraid.”
Now, here’s what the current sentiment among Bitcoin (and broader crypto) investors looks like:
A greedy cryptocurrency sector | Source: Alternative
As seen above, Bitcoin’s fear and greed index currently stands at 55, suggesting that the market has now rightfully entered the greed zone. Before this break-in in the region, the industry had been in the fear region non-stop since March 2022, about ten months ago.
The chart below shows how the value of the metric has changed over the past year.
Looks like the metric has observed some growth in recent days | Source: Alternative
As you can see from the chart, the indicator has spent almost all of last year not just in the fear zone, but actually all the way in the extreme fear zone. There was only one real spike in greed during this time period, and that was the aforementioned instance of March 2022. This previous surge had only lasted one day before the market turned fearful again.
These sustained streaks of fear and extreme fear over the past year were both the longest streaks in the indicator’s history. Greed finally returning to the Bitcoin market after all this time could mean investors are ready to embrace some bullish action again, which could be a positive sign for the current rally.
BTC price
At the time of writing, Bitcoin is trading around $22,900, up 9% over the past week.
The value of the asset seems to have been consolidating in recent days | Source: BTCUSD on TradingView
Featured image by André François McKenzie on Unsplash.com, charts from TradingView.com, Alternative.me