The Fear and Greed Index for Cryptocurrency is an index that attempts to quantify the current sentiment of crypto market participants using two emotions – fear and greed. The premise is simple: when people are fearful, they sell their coins which drives down prices.
When they are greedy, they buy more coins, driving up prices. Scores range from 1-100 where 1 is extremely fearful and 100 signify an extremely greedy sentiment.
The Fear and Greed Index for Cryptocurrency uses the following inputs:
- The percent of BTC volume traded in fiat (negative since it drives upmarket price) – (BPI: -17%)
- The percent of ETH volume traded in fiat (negative since it drives upmarket price) – (BPI: -20%)
- The percent of XRP volume traded in fiat (negative since it drives upmarket price) – (BPI: -17%)
- The percent of BCH volume traded in fiat (positive since it drives down market price) – (BPI: +15%)
- The percent of EOS volume traded in fiat (positive since it drives down market price) – (BPI: +1%)
- The percent of LTC volume traded in fiat (positive since it drives down market price) – (BPI: +12%)
- The percent of BNB volume traded in fiat (positive since it drives down market price) – (BPI: +8%)
- The percent of ADA volume traded in fiat (positive since it drives down market price) – (BPI: +10%)
- The percent of XLM volume traded in fiat (positive since it drives down market price) – (BPI: +5%)
- The percent of DASH volume traded in fiat (positive since it drives down market price) – (BPI: +11%)
To calculate the Fear and Greed Index for Cryptocurrency, these inputs are then combined into a single number between 1-100 that may be interpreted as follows:
- 1-33 = Extremely Fearful (Sell and go away)
- 34-66 = Very Fearful (Don’t go all in just yet)
- 67-89 = Neutral/Indifferent (Blue skies – buy and hold long term)
- 90-100 = Extremely Greedily (All in now)
The Fear and Greed Index for Cryptocurrency (BPI) is currently at 9, which is Neutral/Indifferent. This means that it’s probably not a great time to buy or sell, but both are equally likely possibilities.
How Fear and Greed Index Affect Crypto Trading
The Fear and Greed Index for Cryptocurrency should be treated as a diversification tool. If the BPI is at 1, which means it’s not a good time to buy because prices are likely to fall. However, altcoins on Bitcoin Motion may look exceptionally attractive since Bitcoin dominance will be low, resulting in better returns once the market recovers.
Alternatively, if the BPI is at 100, that means fear and greed are high. This can drive prices up quickly, but it’s also a good time to take profits since the market is likely to crash (but not necessarily in that order).
Importantly, the Fear and Greed Index for Cryptocurrency provides another piece of information to inform trading decisions. When prices are low and fear is high, it might be a good time to go long on Bitcoin or other alts. Alternatively, if prices are high and greed is high it may be time to sell before things turn sour.
Finally, the BPI may also be used as a contrarian indicator – if it’s low when prices are high, that means it’s probably time to sell (but not necessarily in that order).
Conclusion
The Fear and Greed Index for Cryptocurrency is just one of many tools that can be used to inform trading decisions. It is meant as a completely separate indicator pointing to contrarian signals. When prices are high and greed is high, it’s probably time to sell before things turn sour.
