HomeNewsWhat is the crypto fear and greed index?

What is the crypto fear and greed index?

Investing in crypto is not something you can do without any proper understanding and research. Moreover, it is always recommended that have thorough research on various parameters when you’re planning to invest in a specific cryptocurrency. Besides looking at its own parameters, it is wise to look around the crypto market to understand the sentiment. All of this holds true for traditional markets as well. However, there’s one problem: there are tons and tons of parameters and fundamentals to look at. Looking at all of them is not a time-effective move and could often have you fall behind in the present situation of the market. To ease this matter to an extent, we have the Crypto Fear and Greed Index. But what is it?

Crypto Fear and Greed Index allows users to determine the performance of crypto assets

A general thumb rule in markets is that whenever there is excessive fear, markets tend to fall. On the other hand, markets tend to shine if there is excessive greed. Since this logic applies in the equity markets, it holds value in crypto markets too.

There is a website called Alternative.me that offers statistics and information about various software and their alternatives. All this allows users to look at the fear and greed index of crypto assets. By obtaining this information, potential investors can decide whether to invest or not basis on the performance of crypto assets.

As of now, the index is only available for Bitcoin (BTC). However, more cryptos will come up on the website soon.

But how does the Crypto Fear and Greed Index evaluate the performance of a crypto asset?

Firstly, the index evaluates the market sentiment which it represents on a score of 1 to 100. The former half of the spectrum indicates fear and the latter indicates greed. Further division of it results in four categories: Extreme fear, Fear, Greed, and Extreme greed.

According to the standard market analogy, the index evaluates that greed is when many people buy an asset. On the other hand, fear is when many people sell that asset simultaneously.

Besides market sentiment, the index takes many fundamentals into account such as dominance, social media, surveys, trends, volatility, and market volume. We’ll talk about all those in brief.

Factors involved in the Index

  • Volatility – It contributes to 25% of the index. It takes in the current value of Bitcoin, averaging it from the last 30 and 90 days.
  • Dominance – It evaluates how dominant that particular crypto asset is in the market. It contributes to about 10% of the index.
  • Social Media – It looks at the crypto mentions and conversations on multiple social media websites. General consensus is that more mentions mean that the crypto asset is garnering attention resulting in a higher score on the index. It contributes to about 15% of the index.
  • Surveys – The website conducts its own surveys with an average participation of about 2000-3000 volunteers. It contributes to about 15% of the index.
  • Trends – It looks at the crypto asset’s search volume on Google. More search volume means greater attention which in turn leads to a higher score. It contributes about 10% to the index.

Overall, the crypto fear and greed index looks like a viable option for new as well as experienced users and investors. It allows them to have a collective look at a particular asset without indulging too much in the details. Moreover, the following tool could potentially help many users make an informed decision while investing in crypto.

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