Data shows the Bitcoin market sentiment is right on the edge of venturing into extreme greed. Here’s what this means for the cryptocurrency’s price.
Bitcoin Fear & Greed Index Is Sitting Just Below Extreme Greed Right Now
The “Fear & Greed Index” is an indicator that tells us about the sentiment shared by the majority of the investors in the Bitcoin and wider cryptocurrency sector.
According to Alternative, its creator, the index takes into account these factors when calculating the mentality: volatility, market volume, social media sentiment, market cap dominance, and Google Trends.
The Fear & Greed Index uses a numeric scale that runs from 0-100 to denote the sentiment. Values of the metric above the 54 mark suggest greed among traders, while those below 46 imply the presence of fear. The region in between these two thresholds naturally belongs to a neutral territory.
These three sentiments aren’t the only regions that the indicator has; there are also two special sentiments called “extreme greed” and “extreme fear.” The former of these occurs when the index hits 75 or more, while the latter takes place at 25 or less.
Now, here is what the sentiment in the current market looks like according to the Bitcoin Fear & Greed Index:
The metric appears to have a value of 74 at the moment | Source: Alternative
The Bitcoin Fear & Greed Index has a value of 74 right now, which suggests that the market is deep inside the greed territory, just a step away from crossing into extreme greed.
Historically, the extreme sentiments have held some level of importance for the price of BTC, as major tops and bottoms in the asset have taken shape while the market has held these sentiments.
This relationship, though, has been opposite to what one may initially assume. Periods of extreme fear have actually been when buying opportunities have presented themselves as the asset has become probable to form bottoms then, while extreme greed has been where tops have occurred.
Traders often dubbed “contrarian investors” are those who have caught onto this pattern and use it for timing their buy and sell moves. Warren Buffet‘s famous quote best sums up the idea, “Be fearful when others are greedy, and greedy when others are fearful.”
Since the Bitcoin Fear & Greed Index is right at the edge of extreme greed now, it may mean that the cryptocurrency could be getting close to becoming overheated.
An inspection of the recent trend in the indicator reveals, though, that the sentiment has been floating under this region for a while now, coming close many times, but never actually breaking into extreme greed.
Looks like the indicator has been near the extreme greed territory for a while now | Source: Alternative
It would appear that the Bitcoin investors have become quite greedy recently, but are still not yet ready to embrace the euphoria that has been associated with heated bull markets in the past.
A contrarian investor would perhaps be closely monitoring the situation as if a break into extreme greed does happen, it might be a signal to sell the coin.
BTC Price
Bitcoin has gone a bit stale recently as the asset has mostly been consolidating between $37,000 and $38,000.
BTC hasn't showed much volatility recently | Source: BTCUSD on TradingView