Data shows that Bitcoin market sentiment has worsened recently and is approaching extreme fear territory.
Bitcoin’s Fear and Greed Index recently plunged into fear territory
The Fear and Greed Index is a Bitcoin indicator that measures the general sentiment of investors in Bitcoin and the broader cryptocurrency market. This indicator represents this sentiment using a numerical scale from 0 to 100.
If the index value is greater than 54, the investor shares greed. On the other hand, a value below 46 means there is fear in the market. This in-between area, of course, suggests that majority thinking is currently neutral.
The current Bitcoin fear and greed index looks like this:
The value of the index appears to be 30 at the moment | Source: Alternative
As shown above, the value of Bitcoin’s Fear and Greed Index is currently 30, meaning that most investors in this sector share the fear mentality.
Just yesterday, the value of this indicator was 40. This means that sentiment has deteriorated considerably over the past day.
Looks like the metric's value has sharply declined | Source: Alternative
In addition to the three core emotions already discussed, there are also “extreme fear” and “extreme greed.” These two areas of indicators are historically very important for cryptocurrencies.
The reason is that extreme fear occurs under the age of 25, when a large bottom in asset prices is formed. Similarly, the top occurred with extreme greed (over 75 years old).
Bitcoin in general tends to fall short of most investors’ expectations. The extreme region is when this expectation is strongest, which is why the reversal occurred.
A trading technique called “contrarian investing” takes advantage of this apparent pattern. Warren Buffett famously said, “Be fearful when others are greedy, and be greedy when others are fearful.”
The current value of the index (30) is very close to the extreme fear region, meaning that it could fall into this region if sentiment worsens further in the coming days. Naturally, if such a decline occurs, contrarian investors may take it as a signal to buy the cryptocurrency.
Interestingly, if Bitcoin bottoms out and gears up for a reversal in the coming weeks, it will match the historic Halloween effect. According to this effect, BTC and other assets usually perform best from October 31st to May 1st.
People who practice the “sell in May and exit” strategy come back and buy back their assets this season. It remains to be seen how Bitcoin sentiment will develop over the next month and whether the Halloween effect will play any role.
At the time of this writing, Bitcoin is trading around $26,200, up 1% over the past week.
BTC has enjoyed some rise during the past 24 hours | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, Charts from TradingView.com, Alternative.me