The crypto market #behaviour is very emotional. People tend to get greedy when the market is rising which results in #FOMO (Fear of missing out). Also, people often sell their coins in #irrational reaction of seeing red numbers. With our #Fear and Greed Index, we try to save you from your own #emotional overreations. There are two simple #assumptions:
- Extreme fear can be a sign that #investors are too worried. That could be a buying#opportunity.
- When Investors are getting too #greedy, that means the market is due for a #correction.
Therefore, we analyze the current #sentiment of the Bitcoin market and crunch the numbers into a simple meter from 0 to 100. Zero means “Extreme Fear”, while 100 means “Extreme Greed”. See below for fruther #information on the #data sources.
We are gathering #data from the five following sources. Each #data point is valued the same as the day before in order to visualize a meaningful #progress in sentiment change of the #crypto market.
First of all, the current index is for #bitcoin only (we offer separate indices for large alt coins soon), because a big part of it is the #volatility of the coin price.
But let’s list all the different factors we’re #including in the current index:
Volatility (25 %)
We’re measuring the current #volatility and max. drawdowns of #bitcoin and compare it with the corresponding average values of the last 30 days and 90 days. We argue that an unusual rise in #volatility is a sign of a fearful #market.
Market Momentum/Volume (25%)
Also, we’re measuring the current volume and #market momentum (again in comparison with the last 30/90 day average values) and put those two #values together. Generally, when we see high buying #volumes in a positive #market on a daily basis, we #conclude that the market acts overly greedy / too #bullish.
Social Media (15%)
While the reddit #sentiment analysis is still not in the live index (we’re still experimenting some market-related key words in the text processing #algorithm), the twitter analysis is running. There, 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). A unusual high #interaction rate results in a grown public #interest in the coin and in our eyes, corresponds to a greedy market #behaviour.
We’re getting data from weekly crypto polls. Usually, data from 2,000 – 3,000 votes on each poll are used in the index. We don’t give those results too much attention, but it was quite useful in the beginning of the studies
The dominance of a coin #resembles the #marketcap share of the whole crypto market. Especially for Bitcoin, we think that 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 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 #behaviour for that specific coin.
We pull Google #Trends data for various #Bitcoin related search queries and crunch those numbers, especially the change of search #volumes as well as recommended other currently popular searches. For example, if you check Google Trends for “Bitcoin”, you can’t get much information from the search volume.
We are sure that Social Sentiment Analysis are the key to predict the market.