Bitcoin market is scared as sentiment falls to lowest since January
Data shows that Bitcoin investors have become fearful again as market sentiment has now fallen to its lowest value since early January.
Bitcoin Fear and Greed Index Currently Pointing to “Fear”
The “Fear and Greed Index” is an indicator that tells us about the general sentiment among investors in the Bitcoin (and broader cryptocurrency) market. The metric uses a numerical scale that goes from 0-100 to show this feeling.
All values of the index above the 50 mark suggest that investors are greedy right now, while those below this threshold suggest that the market is currently fearful.
Although the limit may be clean in theory, in practice the values close to 50 (between 46 and 54) are considered to represent a kind of “neutral” feeling.
There are also two other special emotions called extreme fear and extreme greed. The former of these occurs at values below 25, while the latter occurs at levels greater than 75.
The significance of the extreme fear region is that bottoms in the price of Bitcoin have historically taken shape when investors have held this sentiment. Similarly, peaks have formed while extreme greed has gripped the market.
Now, here’s a gauge showing how sentiment in Bitcoin and the broader cryptocurrency sector looks at the moment:
The market sentiment seems to be that of fear right now | Source: Alternative
As you can see above, the Bitcoin Fear and Greed Index currently has a value of 34, which means that investors are sharing a sense of fear right now. However, this change in mentality is recent, as the recent price drop in the cryptocurrency is what has pushed investors to be fearful.
The chart below shows how the index’s value has changed over the past year:
Looks like the metric's value has plunged in recent days | Source: Alternative
From the graph, it is visible that the metric had quite low values during the Bitcoin bear market, but with the start of the rally in January, the sentiment had greatly improved and hit greed values.
Market sentiment has hovered between greedy and neutral for the last couple of months since then, but in the last two days the indicator has plunged. The current values of the index are the lowest since the beginning of January, when market sentiment first started to improve. This means that the decline has effectively reversed any development that investors made in terms of mentality during the recent rally.
However, a positive takeaway from the drop in sentiment may be that Bitcoin may now be more lucrative to buy as the chances of a bottom usually increase the further the index declines.
A trading philosophy called contrarian investing is actually based on this idea, where investors prefer to buy when the market is at its worst and sell when investors are greedy. Perhaps it would be at times like now that a contrarian investor would move to buy more of the cryptocurrency.
BTC price
At the time of writing, Bitcoin is trading around $19,700, down 12% in the last week.
BTC has plunged during the past day | Source: BTCUSD on TradingView
Featured image from Thought Catalog on Unsplash.com, Charts from TradingView.com, Alternative.me
