Crypto Fear and Greed Index: Chart, Meaning, Calculation & How It Works?

Fear and greed are powerful emotions which influence investor behaviour in the investment realm. If you are a cryptocurrency investor, there is a possibility that you may have come across Crypto Fear and Greed Index in the news or on social media.

Value of this particular index can actually indicate a lot about what’s going to happen with the price of a cryptocurrency. With that in context, let’s take a closer look at various vital details related to the Fear and Greed Index.

Fear and Greed Index Crypto Chart

The Fear and Greed Index crypto chart fluctuates periodically. The last updated crypto Fear and Greed Index chart with respect to Bitcoin prices is presented in the following illustration:

Source 

This chart was last updated on 7 December 2022. 

The different zones on the fear and greed crypto index are as follows: 

• 0-24 denotes “extreme fear”
• 25-49 denotes “fear”
• 50-74 denotes “greed”
• 75-100 denotes “extreme greed”

This chart gets updated every day.

What is Fear and Greed Index?

CNNMoney developed this Fear and Greed Index to measure two primary emotions which influence how much investors want to pay for stocks. This Fear and Greed Index is measured on a yearly, monthly, daily and weekly basis.

Theoretically, this Fear and Greed Index can be utilised to gauge whether the stock market is fairly priced. This is based on the logic that too much fear can drive down share prices, and excessive greed can have the opposite impact.

Fear and Greed Index Crypto Meaning

Crypto Fear and Greed Index is a metric that is designed to gauge market sentiment toward cryptocurrencies at a given time.

This index generates a number - between 0 and 100. 1 indicates that there is a state of extreme fear in the cryptocurrency market, thereby implying that people are selling. On the other end, a 100 denotes that the market is going through an extreme level of greed which simply means people are buying.

A general rule of thumb states that when this index value is at 1, it generally indicates a buying opportunity. That’s because this number denotes “extreme fear” in the market, thereby implying investors are afraid to purchase at this time. And as investors stay away or sell over fears that coins will lose value, the price may be deflated.

Again, a 100 on this index will be seen as “extreme greed” and will generally be interpreted as a sell signal.

How is Fear and Greed Index Calculated?

Alternate.me calculates the Fear and Greed Index by making use of a range of factors. Here’s a look at multiple factors which influence the ultimate output:

• Social media 

This index tracts hashtags and mentions and draws a comparison for them to historical averages. Greater hashtags and mentions are interpreted as higher market involvement and result in a rise in final index output. 

Social media denotes 15% of index value.

• Dominance

Fear and Greed Index measures Bitcoin’s dominance in the entire market. As interpreted by the index, the greater the dominance, the more fearful the market is. As alternative cryptos gain market share, the market will likely act courageously and not fearfully. Lesser the Bitcoin’s dominance, the greedier the market is likely to become. Dominance denotes 10% of the index value.

• Surveys 

This index conducts huge, market-wide surveys weekly. Usually, every survey comprises 2000 to 3000 participants. More enthusiastic survey results help drive this index higher, referring to prevailing market greed. Surveys account for 15% of index value.

• Trends

Fear and Greed Index includes Google trend numbers in the final value. The greater the search interest in crypto becomes, the more amount of greed will likely be seen in the market. Trends denote 10% of index value.

• Volatility

This index compares max drawdowns (a drawdown is a decline in value) and volatility against 90-day and 30-day average volatility and drawdown numbers. Greater volatility is seen as fearful and leads to an increase in the final output. Volatility denotes 25% of the index value.

• Momentum/volume 

Fear and Greed Index measures the current volume and momentum of the market against the 90-day and 30-day averages. High momentum and volume are considered negative metrics and raise the final index output. Momentum/volume denotes 25% of index value.

Surveys were used in the past but are presently paused. In addition, the signals are based on Bitcoin. But other major cryptocurrencies may soon be incorporated into this index.

How to Use Fear and Greed Index?

Cryptocurrency market can indeed be volatile at times. This is partly because of emotional investors reacting to the market. Individuals can have a FOMO (Fear Of Missing Out) feeling, which can make them greedy when the market is going up. Also, they can be fearful when the market is plummeting, which can lead them to sell their coins. 

Several traders make use of this index as a market indicator, a tool which provides them with information related to the market, thereby helping them to trade smarter. Analysing the overall emotions and sentiment driving the market has helped several traders outperform the market. 

As per creators, using this Fear and Greed Index in the following manner can prove to be helpful while trading: 

• Extreme greed can imply that investors are too greedy and the whole market is due for a correction.
• Extreme fear can be a buying opportunity as investors are probably too worried. 

Bottom Line

Undoubtedly, predicting future movements of cryptocurrency assets with perfection is impossible. But there are some indicators like Fear and Greed Index, which offer actionable insights. Thus, it is crucial for potential investors and crypto enthusiasts to understand this index’s structure, what it captures and what it says about the market.