We aggregate data from the following five sources. Each data point is equally weighted with the previous day to visualize the meaningful progress in sentiment changes in the cryptocurrency market.
The following factors are currently included in the index:
Volatility (25%)
We measure the current volatility of Bitcoin and the maximum drawdown, comparing them to the average values over the past 30 and 90 days. An unusual spike in volatility is interpreted as a sign of a fearful market.
Momentum/Volume (25%)
We assess the current market momentum and volume by comparing these values to the average values over the last 30 and 90 days and aggregating these two values together. When we observe high buying volumes in a positive market on a daily basis, we conclude that the market is behaving greedily or overly bullish.
Social media (15%)
And although Reddit sentiment analysis has not yet been included in the live index (as we are still testing market-related keywords in the text processing algorithm), our X analysis is fully operational. We collect and analyze posts using different hashtags for each coin (currently, we only publicly display data for Bitcoin) and analyze the speed and volume of interactions within specific time frames. An unusually high interaction rate indicates increased public interest in the coin, which we interpret as a sign of greedy market behavior.
Surveys (15%)
Alongside strawpoll.com (disclaimer: we own this platform), a large public polling site, we conduct weekly cryptocurrency surveys to gauge market sentiment. These polls typically receive 2000-3000 votes per survey, providing insight into the feelings of a segment of cryptocurrency investors. While we don't focus heavily on these results, they have been particularly useful during the early stages of our research. You can view some recent results here.
Dominance (10%)
The dominance of a coin represents its market share within the entire crypto market. For Bitcoin, a rising dominance often reflects market fears, as investors reduce their speculative investments in altcoins and turn to Bitcoin as a safe-haven asset. Conversely, when Bitcoin's dominance declines, it indicates increasing greed as investors shift to high-risk altcoins in hopes of capitalizing on the next big upward wave. However, when analyzing the dominance of another coin besides Bitcoin, the interpretation may differ. Increased interest in the altcoin may indicate bullish behavior or specific greed related to that coin.
Trends (10%)
We analyze Google Trends data for various Bitcoin-related search queries, focusing on changes in search volumes and other recommended popular searches. For example, searching for 'Bitcoin' on Google Trends may not provide much insight from the total search volume. However, on May 29, 2018, there was a +1550% increase in searches for 'Bitcoin price manipulation' among related queries. This clearly indicates fear in the market, which we take into account in our index.
How is the Fear and Greed Index calculated in the cryptocurrency market and how should it be used?
The cryptocurrency market is heavily driven by emotions. When the market rises, people often become greedy, leading to increased fear of missing out (FOMO). Conversely, market downturns can lead to irrational sell-offs in response to seeing 'red numbers'. The Fear and Greed Index aims to help you avoid these excessive emotional reactions.
There are two simple assumptions:
Extreme fear may indicate that investors are overly worried, which could represent a buying opportunity.
Excessive greed often indicates that a market correction is imminent.
Content creators have analyzed historical Bitcoin market sentiment by summarizing the data on a scale from 0 to 100.
0-25: Extreme fear
25-45: Fear
45-55: Neutral
55-75: Greed
75-100: Extreme greed
Please note that this index lacks sufficient historical samples to fully validate its effectiveness. Use this index cautiously while developing your investment strategy.
