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Crypto Fear and Greed Index Gets it Right Again

  • The Crypto Fear and Greed Index as soon as once more present itself a useful gauge of cryptocurrency market sentiment
  • The index has been in ‘greed’ mode for 5 weeks, which is historically a time to promote
  • It is feasible to commerce in response to the index values

The Crypto Fear and Greed Index has as soon as once more ‘predicted’ a cryptocurrency market crash, maintaining its unimaginable run. The index, which started in February 2018, measures a variety of metrics within the cryptocurrency world and has prior to now proved itself to be a scarily correct predictor of booms and busts within the crypto markets. Following Bitcoin’s run to $12,000 and resultant crash over the weekend, it appears that following the Crypto Fear and Greed index would, as soon as once more, have been the final word cash making (and retention) play.

Hitting the Spot

In July final yr we reported on the uncanny accuracy of the Crypto Fear and Greed Index, which measures a variety of metrics together with volatility, momentum, social media bias, and extra to supply a snapshot of the prevailing ‘mood’ of the cryptocurrency sector.

As we found, when the meter reads over 80 (excessive greed) this can be a signal {that a} crash is inevitable, which frequently occurs inside days. In reality, historical past reveals that something over 70 (greed) is usually sufficient to precipitate a crash, which is why the latest mini-bull market was an attention-grabbing anomaly.

Looking on the Crypto Fear and Greed Index historic chart we will see, within the two and a half years for the reason that Crypto Fear and Greed Index was created, solely as soon as has it spent something like a concerted time period above 70. This was through the 2019 bubble, which peaked at a document excessive of 95 amid large volatility and lasted for lower than two weeks:

The efficiency in July 2019 displays the standard look of a cycle, peaking shortly and coming again down simply as quick. What we’ve got seen within the crypto markets for the previous 5 weeks could be very completely different so far as the Crypto Fear and Greed Index goes:

Screenshot 2020-09-07 at 12.21.11

Never earlier than has the Crypto Fear and Greed Index remained above 70 for a chronic interval in such a way, matching the efficiency of Bitcoin as it ranged between $11,000 and $12,000 throughout the identical time.

Anyone utilizing the concern and greed metrics as their shopping for and promoting information (purchase under 30 and promote above 70) might need been sweating a bit because the sample went on, however they needn’t have been anxious – certain sufficient the metric performed out once more and the index crashed down under 70 final Thursday. This ensured that the sample continued, reinforcing the notion that it actually can be utilized as a medium-term buying and selling instrument.

Trading the Crypto Fear and Greed Index Way

For these desirous to conduct extra evaluation on the index from a buying and selling perspective, what’s additionally attention-grabbing to notice is that dropping to a studying of 40, the place it presently sits, has not often represented the top of a crash. 95% of the time the Crypto Fear and Greed Index ranking has dropped to 40 from a 70+ studying it has continued downward, with the reverse being true on the way in which again up.

It appears then that 40 is one thing of a stopping off level in market cycles, with a continuation of the development nearly all the time following. If this performs out we will assume an extra correction right down to the 20s earlier than a bounce. What meaning when it comes to Bitcoin value shouldn’t be attainable to calculate from the Crypto Fear and Greed Index alone, which means you’ll both have to make use of different technical evaluation or simply wait it out!

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