The market sentiment took a 180-degree turn overnight as BTC briefly dropped below the $60,000 mark, plunging from 75 on the greed scale a week ago to 30 on the fear scale. Since many people are discussing this index, today we will analyze this index thoroughly to see what role it plays in trading.
First, we need to understand how the index is calculated. It is calculated through five main factors:
1. Volatility: The current volatility of BTC prices relative to the past 30 and 90 days. Abnormal increases in volatility may be a sign of market over-fear.
2. Momentum and volume: The momentum and volume relative to the past 30 and 90 days. Excessive buying volume may indicate the market becoming too greedy, and vice versa.
3. Social media: Analyzing sentiment on social media to view the type and quantity of emotional comments at specific times compared to historical standards.
4. BTC dominance: The dominance of Bitcoin relative to other cryptocurrencies.
5. Google Trends: Determining the strong growth or decline in Google searches for a series of related Bitcoin search terms.
After understanding this information, we can further understand the reasons for the change in the fear and greed index. It is clear that the main reason for the current 30 fear index in BTC is not 1 and 2, as its volatility and volume have not shown a significant increase on a weekly level. Therefore, the factors that are likely to affect this index should come from 3 to 5.
Social media data is not readily available, but currently, most retail investors in the market are not feeling extreme panic. On the contrary, there are many bottom-fishing. Google Trends has shown a slight increase and no significant change. Therefore, the main change is likely to appear in BTC dominance. The sharp decline in BTC dominance may be the main reason for the rapid decline in the fear and greed index.
In conclusion, when BTC prices first show extreme fear in the market sentiment, the subsequent period is an opportunity to exit the market. If the price does not fall below the original range, it is possible to wait for a small rebound before selling. In contrast, when extreme fear appears for the second or third time in a bear market, remember the closing price of the most fearful day. From below this price, it is a good opportunity to gradually build a position or invest regularly to absorb chips. However, this does not include unforeseen events like March 12 that only allowed for a 3-day position-building opportunity.
Using this emotional analysis method, it is almost possible to accurately catch the bottom of the range, although it cannot perfectly exit at the top. The first green greedy mark at the end of a bear market often represents the beginning of a new bull market.
Therefore, we should have a diversified attitude towards this fear and greed index. When the price is low, the driving force behind the rise in price must come from the greed of traders who want to buy at low prices, while when the price is high, the force behind the price decline often comes from the fear of traders who want to cash out at high prices.
In my opinion, behind these two emotions correspond to the inherent supply and demand in the market. With the increasing influence of macro factors and traditional institutional funds on the price of BTC, emotional fluctuations will gradually become less extreme. Therefore, what we may need to face is not the collective emotions of the external market, but our own internal psychological state.
The bull market is still ongoing, and there are still many positive factors to come. If you feel that the bull market is over, it is best to clear the market and wait for the bottom of the bear market to buy. If you feel that the crazy bull market has not yet arrived, then hold on to your digital assets and prepare for the next opportunity. There are still many bullish factors yet to come.
In the future, I will bring you an analysis of leading projects in other fields. If you are interested, please follow me. I will also periodically organize some cutting-edge information and project reviews. Welcome to the circle of like-minded people to explore together. If you have any questions, you can comment, ask questions, or send a private message.
