The Fear and Greed Index is one of the simplest yet most popular indicators of cryptocurrency market sentiment. Today, its value dropped to 8 on a scale of 0-100, the last time it happened during the COVID-19 crash two years ago.
The Fear and Greed Index is one of the simplest yet most popular indicators of cryptocurrency market sentiment. Today, its value dropped to 8 on a scale of 0-100, the last time it happened during the COVID-19 crash 2 years ago.
Extremely low values of the Fear and Greed Index indicate that there is extreme fear in the cryptocurrency market today. Usually such situations, according to the popular motto of Warren Buffett, are excellent buying opportunities.
“Fear when others are greedy. Be greedy when others are afraid.”
Despite this, a simple, straightforward explanation of this indicator in the crypto market can lead to a quick liquidation of funds. Excessive fear often begins at the beginning of a downtrend, and excessive greed long before the rise ends.
Furthermore, historical analysis of the Fear and Greed Index moving averages shows that the end of the decline did not mean the beginning of an uptrend. It turns out that it always takes several months from the index peak low to the start of a crypto bull run. This time was usually a period of long consolidation and a sideways trend.
Fear and Greed Index lowest since COVID-19 crash
As per data from Alternative.me, today’s Fear and Greed Index is 8 on a scale of 0-100. This value comes after a decline of about 6 months. During this period, the index has very rarely crossed the extreme fear (0-24 range) or fear (25-49) zone.
In the entire available history of the index, a value of 8 or less has been reached only 3 times before (red circle). This happened in February 2018 (BTC down at $6,000), August 2019 (BTC down at $9,320), and March 2020 (BTC down at $3,782).
Even as Bitcoin hit the macro bottom of the previous bear market at $3156 in December 2018, it pushed the Fear and Greed Index to a reading of 9. Today we see readings of 8 or less for the fourth time since this indicator was created.
End of bear market? Not necessarily!
It seems that the extreme lows of the Fear and Greed Index are only reflected in the absolute lows in the BTC price. However, just by examining the examples above, we can see that even extreme readings do not indicate a downside in the price of bitcoin.
crypto market analyst @Pladizow Tweeted a chart of BTC price, pointing to areas where the index gave very low readings. They confirmed – according to our analysis – that the indicator has been low only 4 times in history (the March 2020 crash appears twice in their charts). However, he added that “after the first two, the price dropped significantly.”
Another example of this concern of not interpreting the index in a simple, inverse way is provided by a chart from LookIntoBitcoin.com. It color-codes bitcoin’s long-term charts to provide information about the fear and greed index on a given day.
In fact, extreme red readings are visible at lower levels of BTC price. Beyond that, however, we can successfully find them at different stages of extended degradation. Conversely, we already see extreme green readings in the first weeks and months of the rise. Furthermore, the two previous all-time highs – $64,500 in April 2021 and $69,000 in November 2021 – were not at all accompanied by green dots.
waiting for the emo cross
In a recent analysis by BeInCrypto, @AtomowyInvestor Explained how moving averages of the index can be used to better determine the state of the cryptocurrency market. He pointed to the so-called “emo cross”, which in the previous two examples was a good sign for the start of a bull run.
An EMO cross occurs when the short term moving average (quarterly, SMA 91 and semi-annually, SMA 182) crosses the fear and greed index above the longer term (annual, SMA 365). In addition, the quarterly is also above the semi-annual at this point. The last two times this has happened (white circles), it has signaled the beginning of a bull market in 2019 and 2020-2021.
In the current market situation, the moving average we are interested in is already in its pre-bull position. However, they are still far from being crossed. Furthermore, in recent weeks, their charts have remained flat and do not show a trend leading to a quick breakout. Atomic Investor refers to such a position as “waiting”.
Finally, extremely low readings of the Fear and Greed Index are not so much an indication of a market bottom as a progressive trend towards one. Therefore, interpreting maximum fear in the market as a short-term buy signal is a flawed strategy.
Nevertheless, negative sentiment should be the point at which a wise investor takes an increasingly strong interest in a fast-moving market and patiently seeks opportunities to engage in it. Usually, however, the opposite is true.
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