Crypto Fear and Greed index is a high-level signal of the overall market sentiment for Bitcoin. This index generates a score anywhere between 0 and 100. A lower score represents fear in the market whereas a higher score represents greed. When the index measures fear in the market, the investors start selling the asset which drags down the price but creates a good opportunity to buy the dip.
On the other side, when the index measures greed, the FOMO (Fear of Missing Out) leads the investors into buying the asset which creates a profit opportunity by selling the holdings (bought during the dip) at the top price.
The table illustrated below provides an understanding of the market sentiment for different scores generated by the Crypto Fear and Greed index:
|Crypto Fear and Greed Index (Score)||Market Sentiment|
|Equal to or less than 24||Extreme Fear|
|Between 25 and 49||Fear|
|Between 51 and 74||Greed|
|Equal to or more than 75||Extreme Greed|
With TrendSpider, the traders can add the Crypto Fear And Greed Index as a lower indicator on the chart and have each market sentiment painted with a unique color explaining the level of ‘fear’ or ‘greed’.
In this documentation, we will explore:
- Adding the Crypto Fear and Greed Index Indicator
- Customizing Crypto Fear and Greed Index Indicator
- Components of the Crypto Fear & Greed Index
- Important Notes
Let's get started 🚀
Adding the Crypto Fear and Greed Index Indicator
Step 1: Click on the vertical ellipsis button (⋮) adjoining the Other Data button.
Step 2: Select Fear&Greed Index option from the dropdown list.
The Crypto Fear and Greed index will appear as a lower indicator on the chart. As can be observed, each market sentiment is painted with a unique color explaining
Customizing Crypto Fear and Greed Index Indicator
Customize and edit the indicator by clicking on the vertical ellipsis (⋮) button.
You will have access to the options for customizing the Index Stroke and Index Color. Click on the Apply button after making the relevant edits.
Components of the Crypto Fear & Greed Index
Crypto Fear and Greed Index is measured using a number of components having different weights including Volatility, Market Momentum/Volume, Social Media, Dominance, and Trends.
The volatility and max drawdown (decline in value) of Bitcoin is compared against the corresponding average values of the last 30 days and 90 days. A significant increase in volatility is understood as fearful. This component represents 25% of the index value.
Market Momentum/Volume (25%)
The latest market momentum and trading volume of the Bitcoin market are compared against the corresponding average values of the last 30 days and 90 days. If the trading volume and momentum are high, then it indicates a greedy/bullish market. This component represents 25% of the index value.
Social Media (15%)
Social media engagements for Bitcoin like mentions, hashtags, likes, tweets, etc. are compared against the historical averages. If the social media engagement is relatively higher, then it indicates grown public interest which corresponds to greedy market behavior. This component represents 15% of the index value.
Note: While Reddit sentiment analysis is still not accommodated in the live index (we’re still experimenting with some market-related keywords in the text processing algorithm), Twitter analysis is running in which we gather and count posts on various hashtags for each coin (publicly, we show only those for Bitcoin) and check how fast and how many interactions they receive in certain time frames.
Bitcoin Dominance (10%)
Bitcoin dominance measures the market capitalization share of Bitcoin against the entire cryptocurrency market. If the market dominance is high, then it indicates the movement of capital and profits from alternative coins to Bitcoin. A rise in Bitcoin dominance is caused by a fear of (and thus a reduction of) too speculative alt-coin investments since Bitcoin is becoming more and more the safe haven of crypto.
On the other side, when Bitcoin dominance shrinks, people are getting more greedy by investing in more risky alt-coins, dreaming of their chance in the next big bull run. Anyhow, analyzing the dominance for a coin other than Bitcoin, you could argue the other way round, since more interest in an alt-coin may conclude a bullish/greedy behavior for that specific coin. This component represents 10% of the index value.
The search queries and volume related to Bitcoin are sourced from Google Trends to determine the market sentiment. If the search interest for Bitcoin is high, then it reflects the greed in the market and vice-versa. This component represents 10% of the index value.
Apparently, there are other components as well that the vendor does not disclose. Source: https://alternative.me/crypto/fear-and-greed-index/
- Crypto Fear and Greed Index Indicator is not applicable for the Monthly and Weekly timeframe
- The information for the Crypto Fear and Greed Index is sourced from the vendor- alternative.me