Will The Crypto Fear and Greed Index Work in a Bull Run?

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  • The Crypto Fear and Greed Index has been a great barometer of crypto sentiment since its creation in February 2018
  • The recent run has seen it in spending more and more time in the 70+ range, breaking the record for most consecutive days above 80
  • With the new market cycle upon us, we will likely see the Crypto Fear and Greed Index staying in this range for the foreseeable future

The Crypto Fear and Greed Index has been a great barometer of crypto market sentiment since its introduction in February 2018, but with the advent of a new market cycle its usefulness might be limited. Bitcoin has been in the ‘greed-extreme greed’ zone since October 21, an unprecedented run which in the past would have meant the time was right to sell. This would have been the worst strategy however as Bitcoin has tipped $19,000, meaning that questions over the efficacy of the Crypto Fear and Greed Index in a bull market have to be raised.

Record Breaking Run

While the 2020 cryptocurrency surge may not have led to the Crypto Fear and Greed Index breaking its all-time high record, it has allowed it to break another. The index hit 95 out of 100 in June 2019 as Bitcoin topped out at $14,000, a record that has never been bettered, although the current run has pushed it hard – it hit 94 on Thursday and again yesterday:

Screenshot 2020-11-22 at 15.11.06

What the current run has achieved however is to break the record for the longest consecutive amount of time over 80, the point at which Bitcoin traditionally crashes:

Screenshot 2020-11-22 at 15.11.22

As we can see, the Crypto Fear and Greed Index rose above 80 on November 5 where it has remained ever since, with 10 of the 18 following days actually spent over 90, something else that is unprecedented.

Those who use the Crypto Fear and Greed Index as a guide to sentiment will be scratching their heads at how the value is able to remain so high for so long, with the price continuing to match it. The reason for this however can be found in the stage of the market.

Bull Market Skews Sentiment

The Fear and Greed Index has never existed at the early stages of a bull market, having launched in February 2018, at the end of a two and a half year bull market. In a bear market the sentiment is very different, with every pump being shorted into the ground, meaning that at the slightest sight of euphoria sellers step in, dropping the price. This resets the Fear and Greed Index and all is right with the world.

At the beginning of a bull market however, the negativity that pervaded the space during a bear market is replaced by exuberance, with even 30-40% pullbacks being celebrated as a chance to load up again.

Crypto Fear and Greed Index Will Remain High

What this means for the Crypto Fear and Greed Index is that, just like the Bitcoin price, the lows that were experienced during the bear market may not return until the cycle starts again, while the double digit price drops that to date have dropped Bitcoin into ‘Fear’ territory may be a thing the past – at least for the foreseeable future.

There is no doubt that we will return to the days of Bitcoin dropping to doom and gloom levels on the Crypto Fear and Greed Index, but, four months into the new cycle, we may have to get used to the sight of Bitcoin being a semi-permanent residence of the 70+ society.