The current market panic index is 23. In view of the time lag, I believe the impact of last night's drop is likely to reduce the panic index to below 20.
Many newcomers in the cryptocurrency world do not understand how to use the panic index and how it is constructed.
According to the introduction of the Fear/Greed Index, we can see that:
“The cryptocurrency market behaves in a very emotional way. When the market is going up, people tend to be greedy and have a fear of missing out; when the market is going down, they react irrationally by selling their cryptocurrencies.
With the help of the Fear and Greed Index, you can get rid of your own emotions as much as possible. Therefore, we analyzed the current sentiment of the Bitcoin market and expressed it on a scale of 0 to 100. "
You can now easily see the values on Binance Square. If you want to see the situation over a longer period of time, you can go to Coinglass.
Let’s take a look at the historical patterns of the index and Bitcoin prices over the past few years:
As can be seen from the chart, after entering 2020, the trend of the panic index has a high correlation with the price of $BTC . The three consecutive pits below 20 are all the stage bottoms of the coin price. What happened in those three pits?
Can you just buy the dip when the index reaches 20? It may not be that simple. I asked ChatGPT to simulate "If I start buying $100 worth of Bitcoin every day when the panic index is below 20 from 2019, and sell it every day when it is above 80, how much profit will I make?" The result is not amazing.
After all, there are too many variables in the market, and it is difficult to guarantee a win with a single strategy. For example, this time we can see that BTC already has an ETF, which is an unprecedented influencing factor. So to what extent the rise and fall of US stocks will affect BTC, we have no precedent to refer to.
If we only look at the various indexes of the US stock market, they are still at historical highs and are far from falling enough. Here is the data of group member chenzhou for reference:
The S&P 500 (5409) is currently 95.4% of its all-time high (5669)
The Nasdaq (16700) is currently 89.4% of its all-time high (18671)
The Dow Jones (40396) is currently 97% of its all-time high (41585)
The Russell 2000 Index (2090) is currently 85% of its all-time high (2458)
The PE of SP500 is now 27.38, which is quite high. There are three main periods in history that have exceeded this figure:
1. 1999 Internet Bubble: The P/E ratio reached an all-time high of over 44 in December 1999.
2. Before the 2008 financial crisis.
3. 2020-2021: After the COVID-19 pandemic, loose monetary policy drove the stock market up, with the price-to-earnings ratio exceeding 30 at one point.
To a certain extent, the reason why Bitcoin fell first is that the market is worried that the US stock market will fall sharply and cause a collapse, so it is priced in first. In other words, after the US stock market really starts to fall, Bitcoin will not fall much further.
So my personal preferred strategy for bottom fishing is:
1) If the panic index remains below 20 for a period of time, forming a pit, then start daily fixed investment. (This tool is available on Binance, and I will open a post to talk about it next time).
2) If the U.S. stock market starts to collapse, BTC will follow suit and plunge, so you can buy it manually.
3) When buying altcoins, you need to consider more than Bitcoin, which is the situation of the chips in the hands of the dealers and those that have not been released. However, the larger the altcoin, the smaller the impact. Priority should be given to tokens with a large circulation ratio or full circulation.
In fact, if you look at it from a long-term perspective, Bitcoin is not expensive now. If we take a longer period of time (a year?), the consensus that it will rise to 100,000 is already very solid. Isn’t doubling the profit attractive compared to outside the circle?
