A Quick Guide to the Fear and Greed Index
In this guide, we’ll be examining what the Fear and Greed Index is, how it works, and how it can be used in combination with a variety of other indicators to help you make the right decision, at the right time, when trading Bitcoin and other cryptocurrencies.
What Is the Crypto Fear and Greed Index?
The fear and greed index measures crypto market sentiment based on data from a variety of sources and creates a single score to reflect the psychology of the crowd at any given time.
The index uses a meter to provide a score out of 100 to express the general feeling of investors towards Bitcoin and other established digital assets on the highly volatile crypto markets. A score of 0 indicates maximum fear, whereas a score of 100 indicates maximum greed.
The scale goes from Extreme Fear, indicated by a score of 1-24, to Fear, a score of 25-49, to Greed, indicated by a score of 50-74, to Extreme Greed indicated by a score of 75-100.
Why Analyze Fear and Greed Specifically?
The two emotions to have the greatest impact an investor’s behavior as they buy and sell Bitcoin, particularly in times of high volatility, are fear and greed. Being aware of the level of these emotions among market participants is critical in determining when to buy and sell.
When the market is rising, there tends to be more greed, as participants don’t want to lose out on the chance to make an even higher profit if prices continue to rise. Equally, when the market is falling, there tends to be more fear, as participants worry that prices will continue to tank and that they will experience even greater losses. As a result, investor fear is likely to depress prices, while an excess of greed will drive up the price.
Extreme fear increases the pressure to sell, lowering the price and while many might choose to cut their losses in this scenario, falling prices can offer a great opportunity to buy a cryptocurrency that is experiencing a dip at bargain basement prices.
So too, extreme greed increases the push to buy, raising the price. While many might choose to buy in this scenario to take advantage of soaring prices this could be an indicator that the market is overvalued and due for a correction, offering a great selling opportunity.
What Are the Primary Fear and Greed Index Data Sources?
The index analyzes a variety of factors, with one of the most significant being volatility. This involves comparing the value of Bitcoin right now to its average value over the last 30 days and the last 90 days.
Other major data points for the Bitcoin Fear and Greed Index include social media sentiment, which is an assessment of opinions being expressed across social media channels; Bitcoin’s market momentum and trading volume over the last 30 and 90-day periods; search trends, which is an evaluation of whether there has been a growth or decline in specific Bitcoin search terms and of course an analysis of Bitcoin dominance, which is BTC’s share of the market against other cryptocurrencies.
The various data sources are gathered on a daily, weekly, monthly, and annual basis, so the index can serve the needs of all types of investors from day-traders to those implementing slightly longer-term strategies.
How Reliable an Indicator Is the Fear and Greed Index?
An examination of how the Fear and Greed Index interacts with the price of Bitcoin shows that the stronger the feelings of fear or greed, the greater the likelihood that a trend reversal is on the way.
However, while the index is a strong indicator that can help forecast local tops and bottoms, and Bitcoin market shifts, it cannot provide any specifics regarding the price points at which the market will change direction.
Another drawback of the Fear and Greed Index is that it reflects the current market sentiment providing short-term insight. It is not ideal for use when trying to anticipate the long-term market trajectory. For example, in a period of Extreme Fear, with an index score of 0 to 24, an investor might buy BTC, based on the assumption that Bitcoin is currently undervalued, whereas the level of fear being exhibited might actually signal the start of a prolonged bear trend.
The crypto Fear and Greed Index is a great tool for understanding crowd sentiment and anticipating broad market trends but is less valuable with regards to exactly when to buy and sell, so it should not be used in isolation. Rather it should be used as one among many fundamental and technical indicators particularly in times of peak market volatility.
How Can You Profit from Your Bitcoin Regardless of Market Conditions?
Here at ArbiSmart, we offer a number of ways to profit from your Bitcoin, whichever direction the market is moving. Even in periods of extreme fear or greed, you can continue to earn a steady, consistent passive profit at close to zero risk.
To begin with, in both bull and bear trends, our automated crypto arbitrage platform generates reliable passive profits of up to 45% a year, depending on the amount deposited.
Crypto arbitrage makes money from temporary price disparities across exchanges. Our automated system, integrated with 35 exchanges, will find a price difference, and buy the coin at the lowest available price before selling it at the highest. These brief price differences occur all the time, with the same regularity in downturns and upturns, making ArbiSmart’s arbitrage service a great hedge against a crash.
Another ArbiSmart utility that generates the same profits in periods of extreme fear and extreme greed is our interest generating wallet, which we just introduced in July, offering industry-high rates of up to 147% a year.
Supporting 25 crypto and FIAT currencies, the wallet offers multiple savings plans including 1-month and 3-month plans as well as 2, 3, and 5-year plans. The more time the funds are locked in savings the higher the interest rate. Interest can be received daily into an available balance for instant access or held in the locked savings balance for a better return.
However, it is the user’s account level that makes all the difference, with a higher level meaning a higher interest rate. Account levels are determined by how much RBIS you hold so more RBIS means a better rate on balances in every supported currency, from BTC, ETH and APE to EUR, USD and GBP.
Balances in RBIS earn 3 times the profit offered for all other balances but a wallet holder who doesn’t want to convert their Bitcoin can still boost their bottom line just for receiving the daily interest in our native token.
As the wallet userbase grows, so will RBIS demand, as more RBIS is locked in savings plans. Meanwhile the forever-limited token supply should drop as more RBIS leaves general circulation. This will lead to a rise in prices , which will result in massive capital gains for RBIS owners.
Demand is likely to increase even higher, further outpacing supply as a series of additional, utilities, all requiring use of the RBIS token, are introduced in late Q3 and Q4. These include an upcoming mobile application, a decentralized yield farming program offering unique gamification features, an NFT marketplace, a one-of-a-kind collection of ArbiSmart NFT’s, a gaming metaverse and a crypto exchange.
The advantage of ArbiSmart’s bear-resilient crypto arbitrage platform and wallet is that they take fear and greed out of the equation so that regardless of market volatility you can continue to earn exceptional returns in any crypto climate, while simultaneously profiting from the rising token value.