Crypto Fear And Greed Index Explained

What Is Crypto Fear And Greed Index

The Crypto Fear and Greed Index is one of the most widely used sentiment indicators in cryptocurrency trading. It helps gauge whether the market is being driven by fear or greed, giving traders insights into the psychology behind price moves.

By tracking market emotions, this index allows traders to make more informed decisions and avoid the pitfalls of following crowd behavior. The index is updated daily, making it a timely tool for crypto traders who want to stay aligned with prevailing market sentiment.

It’s also one of the 7 Crypto Trading Indicators Every Trader Should Know, making it a valuable addition to any trading toolkit.

How Is The Crypto Fear And Greed Index Calculated

The Crypto Fear and Greed Index is based on six weighted factors:

Volatility - 25%

The current volatility and maximum drawdown of Bitcoin compared with the average values of the last 30 days and 90 days. A spike in volatility signals a fearful market.

Market momentum/volume - 25%

The current volume and market momentum of the overall crypto market compared with the average values of the last 30 days and 90 days. A high value indicates an overly bullish and greedy market.

Social media - 15%

The number of mentions of crypto-related keywords on Twitter and Reddit in a certain period. An unusually high number of mentions can signal an increase in interest in the coin which typically corresponds to greedy market behavior.

Surveys - 15%

Alternative.me along with strawpoll.com conduct weekly crypto polls to gauge the public sentiment. Each poll typically gets 2000-3000 votes which provides insights into the sentiments from the sample size of crypto traders.

Dominance - 10%

The dominance of a crypto is calculated by taking its market capitalization as a share of the market cap of the whole crypto market. Bitcoin is given special attention as it is the largest crypto by market capitalisation which makes it a safe haven in crypto. A rise in Bitcoin dominance typically means a fall in speculative alt-coin trading which can signal a fearful market, and vice versa.

Trends - 10%

Data from Google Trends for various Bitcoin-related search queries such as a change in the search volumes as well as other recommended related keywords that are currently trending are used to determine the prevailing sentiments in the crypto markets. For example, a spike in the search query for “cryptocurrency alternatives” suggests that traders are looking for alternative financial assets to trade instead of crypto. This can signal fear in the crypto markets.

How To Use Crypto Fear And Greed Index

There are two main ways to use the Crypto Fear and Greed Index:

Sentiment Indicator

The Crypto Fear and Greed Index is a type of sentiment indicator that measures the overall sentiment and mood of market participants in the crypto market. It operates on a scale from 0 to 100, where 0 represents extreme fear, 50 is considered neutral, and 100 indicates extreme greed.

The index can be further divided into five categories:

• Extreme fear (0-24)

• Fear (25-49)

• Neutral (50-74)

• Greed (75-99)

• Extreme greed (100)

The index can help traders stay aware of the broader sentiment in the crypto markets - whether the market is driven by euphoria or panic, even if they might not be actively following the news. Other sentiment indicators include the Put Call ratio, the Crypto FOMO indicator, and the CBOE Volatility Index (VIX).

Contrarian Indicator

The Crypto Fear and Greed Index can be used as a contrarian indicator in the crypto markets. A crypto contrarian indicator allows traders to identify opportunities to buy or sell cryptocurrencies that go against the prevailing market sentiment and consensus.

Contrarian traders believe that when the market sentiment is excessively optimistic (greedy) or pessimistic (fearful), a reversal in the opposite direction is likely. The core idea of contrarian trading is to buy when others are selling (during times of fear) and sell when others are buying (during times of greed).

For example, in early November 2021, the Crypto Fear and Greed Index was above 70 and above its historical average value. Using the Fear and Greed Index as a contrarian indicator, traders might look at the excessively high greed value and anticipate a downside reversal.

The high Crypto Fear and Greed Index value in November 2021 happens to correspond to the top in Bitcoin’s price. As of October 2023, close to 2 years later, Bitcoin still has not reached its all-time high price.

Conversely, if the index is showing extreme fear, it may signal a potential buying opportunity, as the crypto markets are likely oversold.

While the Crypto Fear and Greed index provides insights into market psychology, it’s most effective when combined with other technical tools such as moving averages, RSI, and MACD. For a broader overview of how these fit together, check out our guide on 7 Crypto Trading Indicators Every Trader Should Know.

Limitations Of Crypto Fear And Greed Index

While useful, the index has limitations:

• Overreliance on sentiment: It doesn’t account for fundamentals (e.g., regulation, macroeconomics).

• Limited historical data: Since it’s relatively new, long-term reliability is harder to establish.

• Bitcoin bias: Many calculations heavily weight BTC, which may not fully reflect altcoin sentiment.

That’s why it should always be paired with technical analysis tools like Fibonacci Retracement and Relative Strength Index (RSI) in Crypto Trading.

Who Created The Crypto Fear And Greed Index

The first Fear and Greed Index was developed by CNN in 2011 as a tool to gauge the prevailing sentiment for the US stock market. The index is derived from seven distinct market indicators: stock price momentum, stock price strength, stock price breadth, put and call options, market volatility, junk bond demand, safe haven demand. The idea has since been adopted for the cryptocurrency markets. The Crypto Fear and Greed Index was developed by Alternative.me which aggregates and analyses data from various sources to measure market sentiment in the crypto space.

Key Takeaways

• The Crypto Fear and Greed Index tracks sentiment on a 0–100 scale, updated daily.

• Traders use it as both a sentiment gauge and a contrarian signal.

• Best used alongside other tools like RSI, MACD, Bollinger Bands, and Moving Averages for confirmation. Learn more in our comprehensive guide to 7 Crypto Trading Indicators Every Trader Should Know.

• Extreme fear often marks buying opportunities, while extreme greed can warn of market tops.

Trade Smarter with Sentiment and Low Costs

Sentiment tools like the Crypto Fear and Greed Index are powerful, but execution matters too. Platforms like Flipster offer zero spreads on major pairs and ultra-low fees—ensuring you keep more profits when trading based on these insights.

FAQs: Crypto Fear and Greed Index

1) What is the Crypto Fear and Greed Index? It’s a daily sentiment indicator (0–100) that measures whether crypto markets are driven by fear (lower scores) or greed (higher scores), helping traders contextualize price moves.

2) How is the Crypto Fear and Greed Index calculated? It aggregates six weighted inputs: volatility (25%), market momentum/volume (25%), social media (15%), surveys (15%), Bitcoin dominance (10%), and Google Trends (10%).

3) How often is the index updated? Daily. Scores typically refresh once per day to reflect current market sentiment.

4) How do traders use the index? Two common ways:

• Sentiment gauge: track crowd emotions to stay context-aware.

• Contrarian signal: extreme fear can hint at potential bottoms; extreme greed can precede tops. For confirmation, pair it with technical tools like RSI, MACD, and moving averages.

5) What score ranges indicate fear or greed? 0–24 = Extreme Fear, 25–49 = Fear, 50–74 = Neutral, 75–99 = Greed, 100 = Extreme Greed.

6) Is the index accurate for altcoins? It’s BTC-weighted and may not fully capture individual altcoin dynamics. Validate with coin-specific metrics and chart analysis.

7) What are the limitations of the index? It emphasizes sentiment and may overlook fundamentals or macro drivers. Limited historical depth also means reliability can vary across cycles. Always combine with technical/fundamental analysis and risk management.

8) What’s the difference between the Crypto Fear & Greed Index and the VIX? The VIX measures expected equity market volatility via options pricing; the Crypto Fear & Greed Index blends several crypto-specific sentiment inputs and is not an options-implied volatility metric.

9) How should I combine the index with indicators? Use it alongside momentum/overbought-oversold tools (e.g., RSI guide) and key levels (Fibonacci retracements) to reduce false signals.

Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service. Trading digital assets and digital asset derivatives comes with a significant risk of loss due to its high price volatility, and is not suitable for all investors. Please refer to our Terms.