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Extreme Fear: Crypto Fear & Greed Index of Market Sentiment Points to Perhaps Tough Times Ahead

TL;DR: Traders, investors, and cryptocurrency enthusiasts are searching hard in the wake of a broad market price dump for ways to plot their next moves. One metric aggregator, The Crypto Fear & Greed Index, published by Alternative.me, is showing the needle for market sentiment has moved all the way over to Extreme Fear as prices continue to reflect a skittish trading environment.

Crypto Fear & Greed Index of Market Sentiment Points to Perhaps Tough Times Ahead

Statisticians and those who employ metrics to prices will caution of paradoxes when the laity attempt to divine what numbers mean in context. Are they descriptions or prescriptions, reflectors or directors? Past performance is not necessarily an indicator of future activity. And so on.

Crypto Fear & Greed Index

With that in mind, The Crypto Fear & Greed Index, which focuses upon BTC as its principal project (there’s talk about listing major alternative coins soon), is today reflecting a 17 on its scale, denoting Extreme Fear among the cryptocurrency ecosystem, from social media to price action. That number has worsened by 3 points from yesterday, as the scale is set from 0 (Extreme Greed) to 100 (Extreme Greed).

The Crypto Fear & Greed Index uses less than half a dozen sources meshed together in order to arrive at a scalable number. A quarter of that number is derived from volatility, which analysts from the site measure as a negative influence. “We’re measuring the current volatility and max. drawdowns of bitcoin,” they explained, “and compare it with the corresponding average values of the last 30 days and 90 days. We argue that an unusual rise in volatility is a sign of a fearful market.”

Momentum, Twitter Hashtags, and Polls

Another quarter of the final average is taken from what analysts call market momentum or volume, using that same 30 days to 90 days timeframe. When “high buying volumes in a positive market on a daily basis” are observed, they’re plotted as too bullish — a counter to volatility. Social media is weighed at only 15%, and relies heavily upon Twitter hashtags and raw posting numbers. Sentiment analysts are also keen to measure how quickly Twitter post engagement happens, which act in favor of a “greedy” indicator in their estimation.

Crypto Fear & Greed Index

Researchers take from polls (their own platform) as well. They’re conducted weekly and garner low thousands in votes. The site doesn’t “give those results too much attention,” and instead uses polling answers to form what seems to be a more general impression. BTC dominance is also taken into account, but makes up only 10% of the weight. Their contention is “we think that a rise in Bitcoin dominance is caused by a fear of (and thus a reduction of) too speculative alt-coin investments.” When dominance slips, that’s a sign of market bullishness.

The sentiment average softens to include Google Trends and its Bitcoin-related search queries for the remaining 10% of the overall score. What that reflects is hard to pin down exactly, but a 1,550% rise, analysts claim for example, in searches with the phrasing “bitcoin price manipulation” is considered to be “clearly a sign of fear in the market, and we use that for our index.” It all adds up to something, but what exactly that is is really anyone’s guess. A significant portion of the market is spooked, for sure, but one needn’t consult anything more than a price book to understand that much.

Crypto Fear & Greed Index

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DISCLOSURE: The author holds cryptocurrency as part of his financial portfolio, including BCH.