Fear/Greed Index Interpretation
The behavior of the cryptocurrency market is very emotional. When the market is rising, people tend to be greedy and have a fear of missing out, and when the market is falling, they react irrationally by selling their cryptocurrencies.
Use the Fear and Greed Index to free yourself from your own emotions as much as possible.
There are two states:
Extreme fear indicates that investors are overly worried and could be a buying opportunity.
Excessive greed indicates that investors are too excited and the market may be due for a correction.
Therefore, we analyzed the current sentiment of the Bitcoin market and expressed it on a scale of 0 to 100.
Reference data sources
The current index is only available for Bitcoin, and we are collecting data from the following five sources. Each data point is valued the same as the previous day to visualize the changes in cryptocurrency market sentiment.
Volatility (25%)
Get Bitcoin's current volatility and maximum value and compare it with the corresponding averages of the last 30 and 90 days. We believe that an abnormal increase in volatility is a sign of fear in the market.
Market Momentum/Volume (25%)
Current volume and market momentum (compared to the last 30/90 day averages) and put these two values together. Usually, when we see a lot of buying volume every day in a positive market, we can conclude that the market is acting too greedy/too bullish.
Social media (15%)
We collect and count reddit and twitter posts on various tags for each coin (publicly, we only show posts for Bitcoin) and check their receiving velocity and number of interactions in a specific time frame. Abnormally high interaction velocity indicates growing public interest, which corresponds to greedy market behavior.
Market research (15%)
A cryptocurrency poll is conducted weekly on the polling platform strawpoll.com and asks people how they feel about the market. Typically, each poll gets 2000-3000 responses, so we can really see the sentiment of a group of cryptocurrency investors. We don't pay too much attention to these results, but it is very useful at the beginning of our research.
Dominance (10%)
Dominance is similar to the market cap share of the entire cryptocurrency market. For Bitcoin specifically, we believe that the rise in Bitcoin dominance is due to fear of overly speculative alternative currency investments, as Bitcoin is increasingly becoming a safe haven for cryptocurrencies. On the other hand, when Bitcoin dominance decreases, people become more greedy and invest in riskier alternative currencies, dreaming of a chance at the next big bull run. In any case, analyzing the dominance of a non-Bitcoin currency, you may come to the opposite conclusion, as greater interest in another currency may lead to a conclusion of bullish/greedy behavior for that currency.
Google Trends (10%)
Google Trends data for various Bitcoin-related search keywords is extracted and these numbers are crunched, particularly changes in search volume and recommendations for other currently popular searches to use in the index.
I am a know-it-all in the cryptocurrency world. If you have any questions, please post them in the comment section and we can discuss them together. If you don’t understand, you can also ask me.
