Bitcoin’s “Extreme Greed” Is Almost Here: Is Price Bottom Near?

Data shows Bitcoin sentiment is close to entering the extreme greed zone. Here’s what it could mean for the cryptocurrency’s price.

Bitcoin’s Fear and Greed Index Has Continued to Decline Recently

THE “Fear and Greed Index” is an indicator developed by Alternative which gives us insights into the average sentiment that traders in the Bitcoin and cryptocurrency markets in general currently share.

The index uses five factors to determine this sentiment: volatility, trading volume, social media, market cap dominance, and Google Trends. The metric uses a numerical scale ranging from zero to one hundred to represent the mindset.

All values ​​of the indicator above the 53 limit suggest the presence of greed among investors, while those below the 47 limit imply the dominance of fear. The region between these two thresholds is correlated with neutral sentiment.

Here is what the Bitcoin Fear & Greed Index currently looks like:

The value of the metric seems to be quite low | Source: Alternative

As you can see above, Bitcoin Fear & Greed currently has a value of 28, which means that the average investor is showing fear. The fear level must also be quite significant, as this current value is quite deep in the territory.

In fact, the last level of the indicator is quite close to a special region called “extreme fear”. Investors show extreme fear when the index falls below 25. There is also a similar zone for the greed side, which is known as “extreme greed” and occurs above 75.

During the first half of last month, the metric had been in or near the latter region, but the recent recession has dramatically lowered sentiment at the other end of the spectrum on the market.

The metric appears to have plummeted in value in recent days | Source: Alternative

Historically, Bitcoin and other cryptocurrencies have tended to show movements that are opposite to what the majority expects. The stronger the crowd’s expectation, the higher the probability of such a contrary movement.

Extreme sentiments are those in which traders are too biased toward one direction. As a result, the major highs and lows of the asset have usually formed when the index was in these zones.

For this reason, some traders prefer to buy when investors are showing extreme fear and sell when they are extremely greedy. This trading philosophy is commonly called “contrary investments.” Warren Buffet’s famous quote sums up the idea: “Be fearful when others are greedy and greedy when others are fearful.”

As the Bitcoin Fear & Greed Index approaches extreme fear territory, it is possible that the cryptocurrency could soon return to showing profitable entry points, if history is any guide.

BTC Price

Bitcoin has so far failed to recover much from its recent crash, as its price is still hovering around $56,700.

The coin’s price appears to have been moving sideways recently | Source: BTCUSD on TradingView

Featured image by Dall-E, Alternative.me, chart by TradingView.com

Fuente