Bitcoin Greed Level At 55, Build Up To A Rally?

How do we find out whether there is any potential upside for crypto from Bitcoin trading, one of the method that I have shared before is using the Fear and Greed Index.

The original Fear and Greed index was created for the stock market by CNN Money. It was created to determine whether certain markets or commodities were trading above or below their alleged values out of greed or fear, respectively.

Fear and Greed Index - an index measuring the sentiment of the crypto market based on market trends and social signals. The Fear & Greed index essentially indicates how two human emotions – fear and greed – influence the crypto market dynamics. It goes from 0 to 100, where 0 represents "extreme fear" while 100 represents "extreme greed."

The factors used to determine the Fear and Greed index in the stock market include stock price momentum, stock price strength, trading volumes, put and call options, junk bond demand, volatility, and safe haven demand.

As for the Fear & Greed index in the crypto market, rather than relying on technical factors like most indicators do, it relies on psychology. Thus, the Fear and Greed index might indicate a fearful market even when the crypto market itself is relatively good based on its technical aspects. Besides, note that the Fear & Greed index does not reflect the prices of crypto assets.

Currently, the Fear and Greed Index stands at 55. This indicate beginning of some upside, possible to a rally.

A rise in volatility contributes to the rise of fear in the market. To measure the volatility, a respective comparisons to the average volatility value of Bitcoin in the previous 30 and 90 days was made

On the other hand, if we notice that volatility is falling, we assume the market's general mood is shifting more toward Greed. 25% of the index's result is based on this parameter.

An atmosphere of greed is normally established when there is unusually high buying volume in the market. The way the momentum/market volume is calculated is similar to the way we calculate the previous factor. A comparison of the current stats to the average of the last 30 days and 90 days. 25% of the end results is based on this factor.

Monitoring hashtags of various coins on Twitter, when the hashtags get high interaction rates, we can conclude that there is a tilt toward Greed. This would mean that interest in Bitcoin is on the rise.

On the contrary, when those numbers are falling, we would be looking at market is entering Fear territory. This factor carries about 15% weight of the end result

When asking people of what they think of Bitcoin directly is pretty effective. This is why surveys make up another aspect of the Fear & Greed Index. Opinions expressed in weekly surveys make up around 15% of the result. These survey normally gather anywhere between 2000 and 3000 votes.

If the dominance of Bitcoin is rising, that means that people are cautious about their crypto choices. In the atmosphere of Greed, investors are more open to experimenting with altcoins, as they hope one of those coin will make it big. On the other hand, in the times of Fear, they tend to stick with what they know, limiting risk. Bitcoin dominance contributes to the index by around 10%.

The data about the search queries of users regarding Bitcoin can tell us a lot about the general atmosphere in the market. For example, if a growing number of queries include "Bitcoin price manipulation," we interpret this as a sign of fear. On the other hand, if queries such as "How to buy crypto" are becoming more and more frequent, we're in for Greedy times. About 10% of the index's result is based on Google Trends.

To understand how to use the Fear and Greed index, it is important to understand what fear and greed symbolize in the crypto market, especially for Bitcoin

The "fear" part of the index goes from 0 to 50. When there is fear, traders rapidly sell off their crypto assets. Besides that, they become less sensitive to price drops. Thus, fearful markets are frequently viewed as a good buying opportunity.

The "greed" part of the index goes from 50 to 100. Greedy markets indicate that traders are overconfident in the price of an asset and are purchasing in large quantities. Therefore, markets that are overly greedy are typically seen as a good opportunity to sell.

So, the essence of using the Fear and Greed index is making decisions that are the opposite of the market sentiment. Besides, it is useful to put the Fear and Greed index next to a price chart of an asset in question. It helps to predict upcoming price reversals. A price reversal almost always occurs right before the market sentiment reaches high fear, whereas a price crash almost always occurs right before the market sentiment reaches high greed.

If we look at how the previous Greed indicator have effect on Bitcoin price, and hence, the crypto stocks trend. We could see that the Bitcoin price is at the higher range, when we have Greed index increasing.

We may think that that is an opportunity to sell, but only if the Greed index is above 75, now we are at 55, to me, this could be a good time for us to look at some of the potential crypto stocks.

BTC on course for 3rd straight day of gains after having fallen more than 20% from peak hit this month after the U.S. approved its first spot bitcoin traded ETF. Cryptocurrency and blockchain-related firms rally on Friday (26 Jan) as bitcoin surpasses the $42,000 level.

Another area would be the staking of Ethereum, there will be more people looking to stake Ethereum, because this could be the next crypto currency that will be gaining tractions.

MSTR has hold a significant number of Bitcoin, so if there is Greed in the market, this mean that investors and traders are looking to buy into it again, this would increase the price of Bitcoin, and hence MSTR would be able to make strategic trade to offload Bitcoin at higher price and buy back at lower price.

Based on the current Greed index reading, it is starting so instead of looking a traders and investors possibility of selling off Bitcoin or crypto stocks, this might be an opportunity to load up.

The next Bitcoin rally might be just round the corner, if we look at what happen in 2021, Bitcoin hit more than S$90k, when Greed index is at 75.

However, do always make sure to approach the Fear and Greed index, or other types of indicators, with caution. Also, it is beneficial to use more than one indicator before making any important decisions.

Appreciate if you could share your thoughts in the comment section whether you think Bitcoin is starting to build up into a rally soon?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.