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Data shows the Bitcoin market sentiment has seen a sharp turnaround recently as the Fear & Greed Index has swung to extreme fear.
Bitcoin Fear & Greed Index Is Back In Extreme Fear Zone
The “Fear & Greed Index” refers to an indicator created by Alternative that tells us about the average sentiment present among traders in the Bitcoin and wider cryptocurrency markets.
The index uses the data of the following five factors to determine the investor mentality: market cap dominance, trading volume, volatility, Google Trends, and social media sentiment. To represent the sentiment, it uses a numerical scale running from zero to hundred.
When the value of the Fear & Greed Index is greater than 53, it means a sentiment of greed is shared by the majority of traders. On the other hand, the indicator being below 47 implies the dominance of fear. All values lying between these two cutoffs correspond to a net neutral mentality.
Besides these three core regions, there are also two ‘extreme’ zones, known as the extreme fear (occurring at 25 and under) and extreme greed (above 75). At present, the market sentiment is in one of these zones, as the Fear & Greed Index’s latest value suggests.
As displayed above, the Bitcoin market sentiment is just inside the extreme fear territory right now, with the Fear & Greed Index sitting at 24. This level of despair among traders is a new development, as just earlier mood was much better.
On January 15th, the index had a value of 61, putting the sentiment of the average investor firmly inside the greed territory. Only six days later, the situation has completely flipped.
The reason behind this shift lies in the bearish price action that the cryptocurrency has faced since US President Donald Trump announced tariffs on several European countries over Greenland.
The earlier greed sentiment also came after trader mentality saw a sharp swing. In fact, the shift was even faster back then, as the Fear & Greed Index went from a near-extreme fear level of 26 to the greedy value of 61 over just two days as Bitcoin witnessed a price surge beyond $97,000.
The latest drop back into the extreme zone may not entirely be a negative development for the cryptocurrency, though, if history is anything to refer to. Often, digital asset markets have tended to move in the direction that goes contrary to the expectations of the majority.
Since extreme fear is where a bearish mentality is the strongest, bottoms can be likely to occur in the zone. Similarly, extreme greed can lead to tops instead. With the sentiment currently in the former zone, it now remains to be seen how long it will take for Bitcoin to find back its footing.
BTC Price
Bitcoin dropped under $88,000 earlier in the day, but the coin has since bounced back to $90,200.
