Crypto Fear and Greed Index Gets it Right Again

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  • The Crypto Fear and Greed Index once again provide itself an invaluable gauge of cryptocurrency market sentiment
  • The index has been in ‘greed’ mode for five weeks, which is traditionally a time to sell
  • It is possible to trade according to the index values

The Crypto Fear and Greed Index has once again ‘predicted’ a cryptocurrency market crash, keeping up its incredible run. The index, which began in February 2018, measures a number of metrics in the cryptocurrency world and has in the past proved itself to be a scarily accurate predictor of booms and busts in the crypto markets. Following Bitcoin’s run to $12,000 and resultant crash over the weekend, it seems that following the Crypto Fear and Greed index would, once again, have been the ultimate money making (and retention) play.

Hitting the Spot

In July last year we reported on the uncanny accuracy of the Crypto Fear and Greed Index, which measures a number of metrics including volatility, momentum, social media bias, and more to offer a snapshot of the prevailing ‘mood’ of the cryptocurrency sector.

As we discovered, when the meter reads over 80 (extreme greed) this is a sign that a crash is inevitable, which often happens within days. In fact, history shows that anything over 70 (greed) is often enough to precipitate a crash, which is why the recent mini-bull market was an interesting anomaly.

Looking at the Crypto Fear and Greed Index historical chart we can see, in the two and a half years since the Crypto Fear and Greed Index was created, only once has it spent anything like a concerted period of time above 70. This was during the 2019 bubble, which peaked at a record high of 95 amid huge volatility and lasted for less than two weeks:

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The performance in July 2019 reflects the typical look of a cycle, peaking quickly and coming back down just as fast. What we have seen in the crypto markets for the past five weeks is very different as far as the Crypto Fear and Greed Index goes:

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Never before has the Crypto Fear and Greed Index remained above 70 for a prolonged period in such a manner, matching the performance of Bitcoin as it ranged between $11,000 and $12,000 during the same time.

Anyone using the fear and greed metrics as their buying and selling guide (buy below 30 and sell above 70) might have been sweating a bit as the pattern went on, but they needn’t have been worried – sure enough the metric played out again and the index crashed down below 70 last Thursday. This ensured that the pattern continued, reinforcing the notion that it really can be used as a medium-term trading tool.

Trading the Crypto Fear and Greed Index Way

For those wanting to conduct more analysis on the index from a trading perspective, what’s also interesting to note is that dropping to a reading of 40, where it currently sits, has rarely represented the end of a crash. 95% of the time the Crypto Fear and Greed Index rating has dropped to 40 from a 70+ reading it has continued downward, with the reverse being true on the way back up.

It seems then that 40 is something of a stopping off point in market cycles, with a continuation of the trend almost always following. If this plays out we can assume a further correction down to the 20s before a bounce. What that means in terms of Bitcoin price is not possible to calculate from the Crypto Fear and Greed Index alone, meaning you will either have to use other technical analysis or just wait it out!