Crypto fear and greed index – Extremely high price volatility is one of the most interesting and challenging things about the crypto world. Cryptocurrency prices can rise and fall dramatically in a short period of time. This is influenced by factors such as news, rumors, supply and demand. However, one of the most influential factors is market sentiment. This is the collective feeling of market participants towards a particular crypto asset. This market sentiment can be measured using the Crypto Fear and Greed Index. This indicator shows whether the market is fearful or greedy. What is the Crypto Fear and Greed Index? How does it work? And how can you use it to make better decisions when trading or investing? Find out in this article.
What is Crypto fear and greed index
The Crypto Fear and Greed Index is a score that describes the sentiment of the crypto market. The score ranges from 0 to 100. However, it should be noted that despite its name, the Crypto Fear and Greed Index only measures bitcoin. It does not measure the crypto asset market as a whole.
The Crypto Fear and Greed Index itself was created by Alternative.me. It is based on CNNMoney’s Fear and Greed Index, which is used to analyze the stock market.
Fear (score 0 to 49) indicates that the market is undervalued and oversupplied. This can signal the right time to buy or buy the dip. Greed (score 50 to 100) is a sign that cryptocurrencies are overvalued and may be in the midst of a bubble. This may indicate that the bull market may be coming to an end.
The Fear and Greed Index can be one of the references when deciding whether to enter or exit the crypto market. However, it’s still a good idea to use other analytical techniques. Don’t rely on this index alone.
How does the Fear and Greed Index work?
Crypto Fear and Greed Index adalah sebuah angka yang berkisar dari 0 hingga 100, yang mencerminkan sentimen pasar terhadap aset kripto. Angka yang rendah menunjukkan bahwa pasar sedang takut, yang biasanya terjadi ketika harga aset kripto turun tajam. Angka yang tinggi menunjukkan bahwa pasar sedang serakah, yang biasanya terjadi ketika harga aset kripto naik tinggi. Crypto Fear and Greed Index bukanlah hasil dari sembarang perhitungan, melainkan didasarkan pada lima komponen yang masing-masing memiliki bobot tertentu. Komponen-komponen tersebut adalah sebagai berikut:
Price Volatility
25% of the total valuation index is made up of price volatility. This component of the valuation looks at the current price of bitcoin. It compares it to the 30- and 90-day averages. Volatility is used to measure fear in the market. Unusual volatility is a sign that the market is leaning toward fear levels, according to Alternative.me.
Market Momentum / Volume
As a measure of bullish or bearish levels in the market, Market Momentum/Volume is used. This component accounts for 25% of the entire Scoring Index. It looks at the current volume and momentum of bitcoin, compares it to the 30- and 90-day averages, and then combines the results. It can be concluded that the market is acting too greedy or too bullish if there is a high volume of buying every day when the market is positive.
Social Media
15% of the valuation index is made up of social media. The social media component is basically the measurement of bitcoin related Twitter hashtags and the speed and number of interactions on the topic. The market is considered greedy when the interaction rate is higher than normal.
Dominance
Dominance represents how large bitcoin’s percentage or market cap is of the total crypto market capacity, and accounts for 10% of the index score. An increase in bitcoin’s dominance could mean that there is less investment in riskier altcoins. Bitcoin is seen as a safer asset to invest in. Meanwhile, decreasing Bitcoin dominance could mean that people are getting greedy by investing in riskier altcoins.
Trends
Accounting for 10% of the total index score, the final component is Trends. Trend refers to the search volume on bitcoin topics that can be seen on Google Trend. It is a sign that the market sentiment is moving towards fear when the search volume for negative bitcoin news increases.
Conclusion
Crypto fear and greed index is an indicator that measures the collective feelings of the participants in the cryptocurrency market with respect to a particular crypto asset. It has a score ranging from 0 to 100. It indicates whether the market is fearful or greedy. A low score (0 to 49) indicates that the market is in a state of fear. This is when the price of a crypto asset falls significantly and demand decreases. This condition can be an opportunity for investors or traders to buy crypto assets at low prices. The market is likely to reverse direction and rise again. A high score (50 to 100) indicates that the market is in a state of greed. This is when the price of crypto assets increases dramatically and supply increases. This can be a warning for investors or traders to be cautious, as the market may already be overpriced and at risk of a correction or decline. By using the Crypto fear and greed index, investors or traders can make more rational and objective decisions. They can avoid emotions that can interfere with the trading or investment process.