The growth and evolution of the cryptocurrency sector are amazing and it has left a profound impact on the global financial scene, for sure. Despite the growth, the volatility associated with the sector has made headlines several times. The value of any crypto coin can surge and take a nosedive unexpectedly and there can be various causes for such fluctuations. Attempts have been made to eradicate or at least reduce the volatility and unpredictability of the sector by several entities involved. One such method or tool is the crypto Fear and Greed Index.
What is Crypto Fear and Greed index?
The crypto Fear and Greed Index was developed by a company named Alternative. Me. This is used to analyze and assess the ratio of Fear and Greed by numerical values or through percentage. This index is being used widely by both newbie and seasoned investors exploring the crypto sector. It gives them an idea about the state of the market at any given time. Alternative. Me, analyses emotions from several sources and then crunches these into numeric form for the users. It is based on the stock market Fear & Greed Index, created by CNNMoney.
As per this index, 0 denotes Extreme Fear, and 100 stands for extreme greed. A lowers core hints the market is gripped by fear. A higher score indicates greed is taking over. A range of 0 and 24 is marked as Extreme ‘Fear’. Neutral is when it gets 50 percent and anything over 75 indicates extreme greed.
When the index shows an Extreme fear percentage it means the investors are very worried and new buyers can enter the market. Extreme greed indicates the market is getting prepared for a correction.
What are the components?
The crypto Fear and Greed Index is based on some components. These are-
- Volatility- It contributes to 25 percent.
- Market momentum- It adds another 25 percent.
- Social media- It contains 15 percent.
- Dominance- Coin dominance gets a share of 10 percent.
- Trends and surveys- These take up 25%.
How useful and reliable it is?
While the crypto Fear and Greed Index is useful for different types of crypto users and investors, cryptocurrency experts think it can be relied upon to an extent. Investment decisions should not be taken solely based on it. They think it is always necessary to do some research about the individual coins and exchanges before using these for crypto buying and selling.
The Crypto Fear & Greed Index measures only Bitcoin and not the other altcoins. However, Bitcoin has an indirect impact on the prices of other crypto coins and so it cannot be deemed as irrelevant.