Crypto Fear and Greed Index: Tracking the Bitcoin Sentiment

Volatility is an intrinsic feature of the cryptocurrency market. Crypto analysts, investors, and industry experts will all agree that cryptocurrencies are indeed among the most volatile and high-risk investments.

Market fluctuations are often challenging for investors to interpret and navigate. This is where the most relied-upon market indicators come into play, helping investors assess market sentiment by considering social signals, market trends, investor psychology and more. Undoubtedly, the Fear and Greed Index stands out as the most widely used of these indicators.

The Fear and Greed Index can be considered a vital metric or indicator that helps assess crypto market movements and sentiment, offering valuable insights to anticipate future trends.

If you're wondering how the fear and greed index is calculated or how we alter market positions based on it, this blog has all the answers. Read on to learn everything about the Fear and Greed Index and how it can assist crypto traders in making more informed decisions and realigning their crypto investment strategies to stay a step ahead of the curve.

What is the Crypto Fear and Greed Index?

The Fear and Greed Index in cryptocurrency markets gauges the overall sentiment by analyzing social signals and market trends, primarily focusing on Bitcoin's market momentum and volatility. The Crypto Fear and Greed Index is called an index because it combines multiple data sources into a single figure. Created by Alternative.me in 2018, this metric is inspired by CNN Money's Fear & Greed Index for traditional stock markets.

The concept is simple: assess the level of fear or greed in the market at any given moment and represent it with a single score. This score helps traders and investors make more informed decisions rather than being driven by emotions. The score ranges from 0 to 100, where lower values indicate widespread market fear and higher values reflect prevailing greed.

Needless to say, too much greed or too much fear is bad for a healthy, well-balanced market. Greed is a strong investment motivator, especially in a rapidly ascending market. In such a situation, investors are taken over by FOMO (Fear of Missing Out) and join the rising tide by buying assets at an inflated price, hoping for the cost to rise further—this rising greed and price inflation result in an oncoming price correction. A classic example is Bitcoin's manic rise in 2021, wherein the Mighty B rose from $30,000 to almost $69,000 in a few days. Traders who bought Bitcoin towards its peak then were soon shocked by its sudden decline.

On the flip side, fear is just as strong a driving force as greed. In a descending market, traders are taken over with fear of losing even more value as they expect the markets to plummet further. In such a situation, traders go on a selling spree and panic sell their holdings, pushing the market further down. A fallen market soon rises to new highs, with traders regretting their short-sighted selling.

The March 2020 crypto market crash due to the COVID-19 pandemic is a classic example of fear taking over the price board. With Bitcoin climbing to new all-time highs later that year, several sellers lost out on Bitcoin's eventual ascent.

How is the Crypto Fear and Greed Index Calculated?

Before we discuss optimal investment strategies aligned with the Fear and Greed Index, let's understand how this metric is calculated.

The Crypto Fear and Greed Index assesses Bitcoin market sentiment from 0 to 100. Alternative.me, a software platform, updates this daily score by analyzing five qualitative and quantitative data sources: price volatility, market momentum/trading volume, social media activity, Bitcoin dominance, and Google trends. Currently, the Fear and Greed index is based solely on Bitcoin. However, other major cryptocurrencies like Ethereum may soon be included in the index.

Here's an in-depth look at the five key qualitative and quantitative data that are factored into calculating the Fear and Greed Index:

• Volatility: Price volatility over the last 30 and 90 days is used in calculating the Fear and Greed index. Increased price volatility is interpreted as an indicator of market fear.

• Market Momentum/Volume: Current market momentum is compared with trading volume. When buying volumes exceed long-term momentum, it suggests the market is becoming overly greedy. Conversely, when purchase volumes skim below the market momentum, it indicates a cautious or fearful market.
• Social Media: A sentiment analysis tool for the social media platform X tracks interaction rates. An unusually high interaction rate signals greedy market behaviour, whereas the converse is true for a fearful market.

• Bitcoin Dominance: A rise in Bitcoin dominance is seen as a sign of fear, as investors shift to a safer asset, while a decrease in Bitcoin dominance indicates growing greed and a move towards more speculative altcoins.

• Search Trends: Google Trends data is analyzed to gauge the number of people searching for Bitcoin-related information.

Earlier, participants' opinions and sentiments about the market were recorded and factored through surveys. Third parties regularly conducted surveys with 2,000 to 3,000 participants to capture their perspectives. However, this aspect of the Fear and Greed index has been currently paused.

Typically, the following is the weightage of each of these factors to arrive at the fear and greed index value at a given time:

Understanding the Score of the Crypto Fear and Greed Index

The Fear and Greed Index factors are pivotal indicators that mix qualitative and quantitative data to derive the index value for a given time. Based on inputs such as volatility, market momentum and more, the Crypto Fear and Greed Index produces a number between 0 and 100 to reflect the sentiment of cryptocurrency investors. A value of 1 represents extreme fear in the market, indicating that investors are anxious and selling off their positions. On the other hand, a value of 100 signifies extreme greed, meaning investors are buying or increasing their holdings due to high market optimism.

On a broader yardstick, the index is categorized as follows:

• 0-24 Extreme fear (Red-Orange): The market is in panic mode, with prices likely dropping and many investors selling off their holdings.

• 25-49 Fear (Orange-Yellow): The market is cautious, but the panic has subsided. Prices may be stabilizing, although uncertainty remains.

• 50-74: Greed (Yellow-light green): Optimism is increasing, and confidence in the market is growing. Prices are likely to rise as investors increase their holdings and new investors join the markets.
• 75-100: Extreme Greed (light green-Green): The market is optimistic, and prices could hit new highs.

Therefore, if the score is 49 or below, it can be understood as a market having characteristics of fear or extreme fear.

On the other hand, a score of 50 and above indicates a greedy/extremely greedy market.

Once we have understood the broad categories of the fear and green index, how do we use them to determine the optimal market position at a given time? How do we know which strategies to follow in a greedy or fearful market?

We have you covered. Read on to understand how you can adopt optimal investment strategies based on the Fear and Greed Index metric and ensure you are a step ahead of the curve.

How do you use the Crypto Fear and Greed Index for crypto investing?

Crypto traders and investors often rely on the Fear and Greed index metric to make investment decisions and plan their crypto portfolios.

An important factor to consider is the short-term benefits of the Fear and Greed index. The Crypto Fear and Greed Index focuses more on short-term changes, such as volatility and market momentum, as well as news events, tweets and social sentiment in the crypto market. As a result, many traders use it as a short-term indicator. The Fear and Greed index is less effective in planning a long-term crypto investment strategy, although it is calculated daily, weekly, monthly and yearly. It is best used for its short-term capabilities rather than its long-term viability.

Now, we have come to the all-important question of how the Fear and Greed Index value can be effectively leveraged to optimally align one's crypto investment strategy and find the right entry/exit points to grab the perfect trade opportunity. Read on to understand the ideal investment strategy in a market of greed and how it differs from ideal action points in a market of fear.

In a Greedy Market: When the market is rising, people tend to flow with the tide of positivity and accumulate more cryptocurrencies, leading to increased greed and further price increases. At such a time, although prices steadily rise, an inflationary trend is prevalent, and assets are usually overvalued. Therefore, a price correction is imminent. So, it would be wise to capitalize on the high prices and sell holdings to book profits, rather than buying on a rising market. When greed takes over, it is better to sell holdings at a high price and take profits home.

In a Fearful Market: When the market is down, people tend to get more pessimistic and fearful, acting on impulse to stop losses further and selling their holdings. At such a time, selling pushes cryptocurrency prices further down. Since a deflationary trend prevails and market dynamics play their role, a price increase typically follows rampant selling in a fearful market.

Therefore, it would be wise to leverage the low prices and buy cryptocurrencies at rock bottom rather than selling holdings in fear of further price drops. As fear overtakes the market, buy assets at falling prices to enjoy lucrative returns when the market soon bounces back.

Why is Bitcoin Considered a Key Indicator for the Fear and Greed Index?

Bitcoin is a key indicator for the Fear and Greed Index because, as the flagship cryptocurrency, its price volatility and market dominance significantly influence the overall crypto market. This makes it a leading indicator of investor emotions like fear and greed. Here is a more detailed explanation of why Bitcoin is a leading indicator for the Fear and Green Index:

• Bitcoin can be considered the 'gold standard' across all cryptocurrencies. Based on its price direction and volume, it most often mirrors the overall crypto market sentiment.

• Bitcoin is a key volatility indicator in the market. A rising Bitcoin clearly indicates increasing optimism/greed in the market, and a plummeting Bitcoin clearly denotes increased fear sentiment in the market.

• Bitcoin dominance reflects Bitcoin's share of the total crypto market capitalization. In simple terms, it measures Bitcoin's share as a percentage of the total market capitalization of the crypto market at a given time. Needless to say, Bitcoin enjoys the biggest chunk of the pie. So, when more investors are flocking to buy Bitcoin, it indicates a cautious or fearful market, as Bitcoin is the safest cryptocurrency to invest in. Thus, a rising Bitcoin dominance indicates a fearful market, with investors favouring BTC over newer or riskier altcoins. On the other hand, a decline in Bitcoin dominance shows capital moving into riskier altcoins as sentiment becomes more optimistic. This is an indicator of a greedy market. Extending this thought, an 'altcoin season' usually indicates an optimistic or greedy market, when funds are redirected from Bitcoin to other riskier cryptos.

What are the Advantages of the Crypto Fear and Greed Index?

Crypto markets are highly speculative and prone to unpredictable price swings, which can trigger fear and greed among investors. In such a situation, indicators like the Fear and Greed metric can be highly beneficial for traders.

Here are some of the advantages of factoring the crypto Fear and Greed Index into your short-term investment plans:

• Crypto market volatility is a key factor influencing prices. The Fear and Greed Index helps understand these volatility patterns and investor sentiment, working as a strong risk management tool.

• The index unfolds continuously and quickly adjusts to changing market conditions, helping traders stay ahead of the curve.

• The Fear and Greed Index is one of the early indicators of trend reversals in the crypto market. It cautions investors to change positions and realign themselves with the shift in price direction.
• A major advantage of the Fear and Greed index is that it factors in qualitative data capturing market sentiment, such as search trends and social buzz. This helps investors optimally gauge sentiment shifts that hold a major bearing on quantitative aspects of the crypto markets.

• As crypto markets are a relatively new space, and several first-time investors are venturing into them, indicators such as the Fear and Greed index help them navigate the volatile crypto markets effectively.
• The Fear and Greed index is a relatively broad viewpoint of the crypto markets. If used along with other technical indicators and charts such as candlestick charts, Fibonacci Retracement and support & resistance levels, the Fear and Greed index can prove to be even more effective and useful. Here are the ten best technical indicators you can pair with the Fear and Greed index to draw out your crypto investment strategy.

What are the Drawbacks or Limitations of The Crypto Fear and Greed Index?

Although the Fear and Greed Index is one of the most widely used indicators in the crypto market, it is not free from limitations. Some of the drawbacks or limitations of the crypto Fear and Greed index include:

• The index mainly focuses on Bitcoin, which may not fully capture sentiment across the broader cryptocurrency market. For example, several industry experts believe that Altcoin Season is here, a big determinant of which is the Altcoin Season Index. This wider viewpoint is absent from the Fear and Greed Index.
• Since the Fear and Greed Index relies on public data sources, it may miss key factors such as institutional trading flows or over-the-counter deals.

• The index also discounts whale activities, which have the potential to change the course of the crypto market in mere minutes.

• The current pause in the survey component also limits the tool's direct input from market participants.

• The Fear and Greed index doesn't effectively capture sudden market news or updates. For example, the recent and sudden imposition of tariffs on Mexico, China, and Canada by US President Donald Trump has caused the crypto market to plummet by over 20%. This sudden bloodbath on the crypto charts is difficult to pre-empt even by inclusive and generic indicators such as the Fear and Greed index.

• The index follows a standard proprietary weightage method for various factors such as market momentum, social media, Bitcoin dominance, search trends, etc. This weightage does not change or adjust based on the specific dynamic prevalent in the market, thereby limiting the index's viability.

• The tool is a backwards-looking index, reflecting past conditions rather than forecasting future movements.

What is the Crypto Fear and Greed Index today?

The Crypto Fear and Greed Index is 17 at the time of writing (April 08, 2025).  

Investors and traders can track the Fear and Greed Index daily on leading cryptocurrency information websites such as:

·   www.alternative.me

·   www.cryptorank.io

·   www.coinstats.app

·   www.coinbase.com

·   www.coinmarketcap.com

Conclusion

Predicting cryptocurrency movements with complete accuracy is impossible, but indicators like the Fear and Greed Index provide valuable insights. Investors and crypto enthusiasts need to understand the index's structure, what it measures, and what it reveals about the market. At the same time, investors must create a winning cryptocurrency portfolio with the right balance of risk and 'safer' crypto coins, along with practising stop-loss measures and prudence in trading volumes. Much like all other technical indicators, the efficacy of the Fear and Greed Index increased when used in conjunction with different charts and technical analysis tools.

Lastly, investors are strongly advised to conduct thorough research before making investments in the cryptocurrency market that is known for its volatility and speculative nature.

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