Bitcoin Fear & Greed Index
The concept of the Fear and Greed Index is useful in understanding the behavioural patterns in the Bitcoin market. This index serves as a tool to navigate the emotional reactions of investors, often driven by fear and greed, which can lead to impulsive decisions like buying in a frenzy or selling in panic.
The index ranges from 0 (Extreme Fear) to 100 (Extreme Greed) and is based on several key factors:
Volatility (25%): Measures the recent volatility and maximum drawdowns of Bitcoin, comparing these to the averages over the last 30 and 90 days. Higher volatility often signals a fearful market.
Market Momentum/Volume (25%): Assesses the current trading volume and momentum relative to the recent average. High volumes in a bullish market indicate excessive greed.
Social Media (15%): Analyses interactions on platforms like Twitter for Bitcoin-related hashtags. Increased social media interaction suggests a greedy market attitude.
Surveys (15%): Utilizes public polls to gauge investor sentiment. While currently paused, these polls previously helped in understanding investor perspectives.
Dominance (10%): Looks at Bitcoin's market cap share within the entire market. An increase in Bitcoin dominance suggests a shift towards it as a safe haven, indicating market fear, whereas a decrease points to greed as investors move towards riskier assets.
Trends (10%): Uses Google Trends data for Bitcoin-related searches. Spikes in specific queries can indicate market fear.
Each factor is equally weighted to reflect a comprehensive view of the market sentiment. This index, focusing primarily on Bitcoin, helps investors understand the underlying emotional dynamics and potentially make more informed decisions.