Fear & Greed Index - Reading Market Sentiment in Numbers
What Is the Fear & Greed Index
The Fear & Greed Index is an indicator that summarizes cryptocurrency market participants' sentiment into a single number between 0 and 100. Calculated daily by Alternative.me, values closer to 0 indicate extreme fear, while values closer to 100 indicate extreme greed.
Markets are not rational. Fear-driven investors sell at bottoms, while greed-driven investors chase buys at tops. The Fear & Greed Index quantifies these extremes of crowd psychology and is used to time contrarian investments.
Warren Buffett said, "Be fearful when others are greedy and greedy when others are fearful." The Fear & Greed Index is the data implementation of this philosophy.
Components
The Fear & Greed Index is calculated as a weighted average of 6 data sources.
| Component | Weight | What It Measures |
|---|---|---|
| Volatility | 25% | Compares current volatility and maximum drawdown to 30-day and 90-day averages |
| Market Volume | 25% | Compares current volume to 30-day and 90-day averages |
| Social Media | 15% | Analyzes Twitter (X) hashtag frequency and engagement rates |
| Surveys | 15% | Incorporates weekly investor survey results |
| Bitcoin Dominance | 10% | Changes in BTC market cap share. Rising dominance = safety preference = fear |
| Google Trends | 10% | Trend changes in search terms like "buy Bitcoin" |
Each component is normalized to 0-100 and then weighted to determine the final score.
Interpretation by Range
The Fear & Greed Index is generally interpreted across 5 levels.
| Range | Score | Meaning | Market Condition |
|---|---|---|---|
| Extreme Fear | 0-25 | Most market participants are gripped by fear | Panic selling, capitulation |
| Fear | 26-45 | Cautious sentiment prevails | Increased sidelines, decreased volume |
| Neutral | 46-55 | No particular bias | Balanced buying and selling |
| Greed | 56-74 | Optimistic sentiment prevails | Increased FOMO buying |
| Extreme Greed | 75-100 | Market overheating, excessive optimism | Leverage surge, massive new inflows |
Extreme Values and Price Reversal Examples
Historically, extreme values in the Fear & Greed Index have shown high correlation with price reversal points.
Extreme Fear to Rally Examples
| Period | Fear & Greed Index | BTC Price | Following 3 Months |
|---|---|---|---|
| March 2020 COVID Shock | 8 | ~$4,800 | +200% and more |
| June 2022 LUNA/3AC Crisis | 6 | ~$17,600 | Bottom confirmed, rally followed |
| November 2022 FTX Collapse | 11 | ~$15,500 | +80% in H1 2023 |
Extreme Greed to Correction Examples
| Period | Fear & Greed Index | BTC Price | Following Trend |
|---|---|---|---|
| February 2021 | 95 | ~$58,000 | -50% correction by May |
| November 2021 | 84 | ~$69,000 | Entered 2022 major downturn |
| March 2024 | 90 | ~$73,000 | Multi-week correction |
Extreme fear is not always a bottom, and extreme greed is not always a top. However, they have historically served as probabilistically significant contrarian signals.
Contrarian Investment Strategy
Basic Principles
The key to contrarian investing using the Fear & Greed Index is acting opposite to the crowd.
- Extreme Fear (0-25) Zone: Begin dollar-cost averaging. Enter when everyone else is leaving.
- Fear (26-45) Zone: Consider additional buying. May still be undervalued.
- Greed (56-74) Zone: Stop additional buying, consider starting to take profits.
- Extreme Greed (75-100) Zone: Dollar-cost average out or increase cash allocation. Be cautious of overheating.
Practical Application Tips
- Never use alone: Don't make trading decisions based solely on the Fear & Greed Index. Always evaluate alongside other on-chain indicators.
- Check duration of extremes: If extreme fear persists for several days, bottom probability increases. One-day spikes may leave room for further decline.
- Execute in tranches: Even when extreme values are confirmed, never go all-in at once. Spread buys/sells across 3-5 transactions.
- Better for long-term investors: More effective for medium to long-term (months to years) perspectives than short-term trading.
Real-Time Monitoring on BitInsight
You can check the current Fear & Greed Index in real-time on the market sentiment badge at the top of the BitInsight dashboard.
| Feature | Description |
|---|---|
| Current Score | 0-100 number with label (Extreme Fear to Extreme Greed) |
| Color Coding | Red (fear) to Yellow (neutral) to Green (greed) gradient |
| Day-over-Day Change | Change magnitude and direction compared to previous day |
By checking the dashboard daily and observing index trends, you can get a feel for the direction of market sentiment changes.
Limitations and Caveats
Lagging Nature
Most components of the Fear & Greed Index (volatility, volume, social media) are based on data that has already occurred. Therefore, in rapidly changing markets, the indicator may reflect reality with a delay.
Bitcoin Bias
This index is primarily calculated around Bitcoin. Disconnects can occur with altcoin market sentiment, and during altcoin seasons, the Bitcoin Fear & Greed Index alone may not adequately gauge overall market sentiment.
Component Limitations
- Surveys: Response bias may exist.
- Social Media Analysis: Can be affected by bot activity and manipulated hashtags.
- Dominance Interpretation: Rising Bitcoin dominance doesn't always indicate fear.
Combining with Other Indicators
The reliability of the Fear & Greed Index increases significantly when used with other indicators.
| Combination | Interpretation |
|---|---|
| Extreme Fear + MVRV < 1.0 | Strong bottom signal. Below market value + fear |
| Extreme Fear + Decreasing Exchange Reserves | Accumulation ongoing despite fear. Positive |
| Extreme Greed + Surging Exchange Inflows | Profit-taking sell orders queued. Correction possible |
| Extreme Greed + Sharp rise in short-term HODL Waves ratio | New speculative capital inflow. Overheating risk |
| Fear + Hashrate all-time high | Price weak but network healthy. Expect divergence resolution |
| Extreme Fear + Moving Average support confirmed | Technically near bottom as well. Strengthened buy case |
Summary
The Fear & Greed Index is an intuitive sentiment indicator that compresses market participants' emotional state into a 0-100 number. Extreme fear has historically shown high correlation with buying opportunities, while extreme greed has correlated with caution zones. However, due to its lagging nature and Bitcoin bias limitations, it must be used in comprehensive analysis alongside other on-chain indicators like MVRV, exchange flows, and HODL Waves. Make it a habit to check the BitInsight dashboard daily to read the flow of market sentiment.
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