Crypto Fear and Greed Index

What is a Fear and Greed Index?

If you frequent popular cryptocurrency exchange platforms, such as Binance, Kraken or Coinbase, a fear and greed index might sound like a familiar concept. It's a specialized type of chart that is designed to capture the actions and emotions that are currently driving a market. This is typically displayed in the form of a half-wheel and an arrow with one side denoting whether the market seems to be motivated by fear, and another denoting whether it is motivated by greed. Both traditional, as well as crypto fear and greed indexes are very common tools for analysing the respective markets.

A crypto fear and greed index is not like other charts or graphs that you typically see on an exchange. It does not measure the price of an asset, or amounts being bought or sold, but rather, it captures a live sentiment in the crypto space, measuring how people are behaving and currently feeling about the industry.

If people are worried about the future of the crypto market, predicting bearish market movements, then the index will point toward fear. However, if people anticipate greater increases in price and have strong positivity regarding the market, then the index will point toward greed. If it is in the middle, then it could indicate neutral thoughts or confusion among traders.

This metric might feel infantile or a little strange, but it can really help contextualize the types of behaviors being exhibited in the industry. It can also help to give an indication as to whether you, as a trader, should be worried or not.

Some people use crypto fear and greed indices as a way of comparing their own beliefs against the beliefs of the trading community, and then further use it as a way of making informed decisions of their own. Remember, while they might not seem it, the financial markets are influenced by emotion, and so, the emotions of the people involved should be listened to, as they can impact the performance of an asset.

There is no concrete or fully established way to utilize a crypto fear and greed index, as people integrate them into their plans in different ways. Some follow the live crypto sentiment and act as if everybody else is doing the same, whereas others try to go in the opposite direction. Warren Buffett, a trading veteran and prominent figure in the fear and greed discourse, famously said that people should "be fearful when others are greedy and greedy when others are fearful", suggesting a type of backward reading of the index.

In truth, this type of metric is highly interpretable, so there are no hard rules on how to use it. However, this does not make it any less or more important than other types of technical analysis, as they help capture the social temperature of the crypto trading landscape, and especially the Bitcoin sentiment, as the markets often follow Bitcoin's movements.

Origins of the Fear and Greed Index

The fear and greed index chart has a complex and somewhat unclear history. The CNNMoney index was the first of its kind - it was created in 2012, and designed specifically to measure these two sentiments on the traditional markets. However, the idea of using these metrics existed long before then.

The notion of fear and greed being the main drivers of the market can be dated back to the 1930s, to the highly influential British economist and philosopher John Maynard Keynes. It could be argued that Keynes is one of the most significant Western economists in recent history, second possibly to Adam Smith, the father of Economics as we know it today.

Keynes presented the idea that traders and consumers make their decisions based on certain emotive factors within them, which he called animal spirits. According to Keynes, animal spirits are the spontaneous impulses that drive people to act rather than to wait and calculate the expected outcomes of their actions. Sometimes, these impulses are optimistic and hopeful, leading people to invest, consume, and take risks.

Other times, these impulses are pessimistic and fearful, leading people to save, hoard, and avoid risks. In this sense, fear and greed are two opposite reactions to the same animal spirit that influences people's expectations and confidence about the future. When people are confident and expect positive outcomes, they tend to be greedy and seek more profits or benefits. When people are uncertain and expect negative outcomes, they tend to be fearful and seek more security or protection.

While this idea may sound mystical, it is essentially just a set of principles in behavioral psychology, dressed up in metaphors to help the concept sink in. The idea caught on over time, to the point where fear and greed became major talking points in trading spaces.

In more recent times, one of the main proponents of this idea, Warren Buffett, helped to propel it to the mainstream by discussing it throughout the last two decades, helping it to gain traction, which is what likely influenced CNNMoney to turn the concept into a real tool. And in even more recent times, a crypto fear and greed index has been created, designed to capture live crypto sentiment.

What is Fear?

To understand how crypto fear and greed indices work, we need to define what exactly fear and greed mean. Let's start with fear. This is the emotion that arises when traders worry about the future of the market. It is the concern and discomfort that they have for the current state of the market.

This feeling can arise from a myriad of factors. It could be due to regulatory anxieties, bad press, or technical analysis signs that indicate poor performance. This can manifest in traders making fewer risky bets, or even in traders following the market movements of others around them, defaulting to herd mentality due to fear that they cannot trust their own deductive and analytic skills.

For our Bitdegree crypto fear and greed index, whenever the number drops below 50, we have entered a fearful market sentiment. And anything below 20 indicates extreme fear.

What is Greed?

Opposite to fear is greed, which is the emotive response that occurs when traders are, not only confident, but ecstatic about the market. This leads them to make risker bets, hold onto their assets for longer than usual, and act as if each day will bring greater gains and profits than the day before. For our Bitdegree crypto fear and greed index, any number above 50 will indicate some level of overall greed in the market, and anything above 80 will indicate extreme greed.

How is the Whole Index Calculated?

The BitDegree crypto fear and greed index is structurally similar to the CNNMoney fear and greed index, meaning it takes in very similar types of information and provides similar outputs, but with a focus on the live crypto and Bitcoin sentiment, rather than on the traditional markets. The information used will be applied in a way that allows for the most accurate and meaningful results possible. The aim of the index is to give our user base a leg up in the trading sphere and provide them with useful insights.

Traditional VS Crypto Indices

There are major differences between how traditional fear and greed index charts function, compared to crypto fear and greed indices. Of course, the greatest of which is that they will be looking at different markets, and so they will produce different outputs. While there is some symmetry between the crypto and traditional markets, there are some extremely important times when they diverge in significant ways.

An example of this is at the start of the COVID pandemic . The traditional markets were filled with fear as highly established sectors struggled to survive, whilst the crypto markets were marked with a sense of greed which caused the rates of various digital assets to soar.

Another difference between these two indices is with the traders themselves. Again, while there is a major overlap between those who trade crypto and those who trade traditional assets, there is also a wide range of people who stick to one lane . The starkest difference you will see is that the crypto markets are typically filled with retail traders who might not have a formal education in finance , as opposed to their traditional counterparts.

This is important because a lack of professional education in finance or economics means that many crypto traders will not know how to read technical analysis or have the guidance or experience to know how to effectively navigate difficult situations . This can lead to a lack of consensus as to how they should act. This can then further lead to erratic results, and could mean a more volatile movement within the crypto fear and greed index chart.

Traditional investors, however, will know the ins and outs of their trade, and will have some education and background to help navigate uncertain and complicated times on the trading floor. This means that they will likely act collectively with more consensus and direction. That is not to say they will all follow the same patterns, but rather that being able to read and interpret market data better will give them all informed insights that retail crypto traders might not have.

Overall, this equates to different live sentiments in both crypto and traditional markets that will often diverge, and the crypto and Bitcoin fear and greed index will likely show signs of volatility more regularly than other indices. This is not a good or a bad thing, but rather, just reflective of the natures of these two separate markets and the emotions of the people who make them up.

BitDegree Fear and Greed Index

This is a color-coded fear and greed index which also comes with historical data to show how the index has changed over a large period of time. This is extremely helpful for people who want to see how market sentiment at the moment compares to just a few weeks or months ago.

The index can be downloaded as an image, or embedded into a social media channel. This is just one of many tools BitDegree offers to help find market sentiment.

X Bitcoin Index

When crypto traders think of fear and greed, this X index is likely to be the one that pops into their mind. While it is not the first of its kind, it is arguably the first to gain prominence in the market, which is a testament to how important social media is for the crypto space.

Interestingly, it is essentially just screenshots from the Alternative.me fear and greed index, with the added perk of having X comments/replies under each image, allowing people to have discussions about changes and behavior.

Cryptochart.tech Index

This is a cryptocurrency index that focuses on capturing the market sentiment for large cryptocurrencies such as Bitcoin and Ethereum, with daily updates. Its evaluation criteria are not disclosed, however.

BTCtools.io Index

This fear and greed crypto index uses market data relating to volume and open interest, as well as social media data from Reddit and X and search data from Bing and Google. This is a good tool for people who want a larger range of social and user-data, rather than just economic data.

Alpha Data Analytics Index

Unlike others on this list, this crypto fear and greed index has two indicators, one for market awareness and one for market sentiment. The sentiment indicator is essentially the same as any fear and greed index; however, the awareness meter can help to give additional info to traders, as it is a measure of media publications that have taken an interest in cryptocurrency at a certain time.

Milkroad Index

Milkroad's index is a simple scale that gives details on what the market sentiment is like. It is visible in practically all of Milkroad's news articles.

Alternative.me Index

While the CNNMoney fear and greed index is the first of its kind for the traditional markets, the Alternative.me index is the original crypto-specific chart. It is many people's first port of call for figuring out the market sentiment. It takes a wide range of data inputs such as market volatility, market momentum, social media, BTC dominance, Google trends, and surveys, although surveys are currently paused.

CoinStats Index

Unlike many of the other indices in this list, the CoinStats chart allows you to see fear and greed metrics for a range of smaller altcoins, as well as behemoths such as Bitcoin and Ethereum. For example, you can see info on Binance's BNB and KuCoin's KCS tokens. This is useful for people who are looking to make a big investment in a coin that is not a market leader.

Look Into Bitcoin Index

This is a very simple index that offers an idea of market sentiment specific to Bitcoin. It takes its data from Bitcoin volatility, momentum and volume, Bitcoin dominance, social media, and Google trends.

Why Do Some Indices Yield Wildly Different Results?

If all fear and greed crypto indices measure the same two ideas, then why do some of them produce different results? The simple answer is that they are all fed slightly different data, and they all weigh that data in different ways. For instance, some indices such as the CNNMoney fear and greed index chart focus exclusively on financial data.

However, others like the Alternative.me crypto fear and greed index also use surveys, social media, and search engine trends. This highlights how different indices conceptualize and aim to prove fear and greed in a variety of ways. It means that traders need to either decide on which index makes the most sense to them , or they can cross-reference across a range so they can make their own decisions.

Alternatives to the Fear / Greed Index

A crypto fear and greed index is only one metric that can be used to measure crypto and Bitcoin sentiment. There is a range of other tools that can be used. One method is via BitDegree's social signals tab, displayed on every coin and token listed on the application. These tell you what type of social media and website attention and traffic each cryptocurrency is receiving.

This means that BitDegree's social signals help to provide a clearer picture of what type of interest and excitement different cryptocurrencies are receiving. Paired with its crypto fear and greed index, this can be a great way of determining which coins and tokens are worth monitoring and potentially investing in.

Another interesting measurement of market sentiment is to use the Bitcoin dominance percentage. This is a measure of how dominant Bitcoin is compared to the total market capitalization of all cryptocurrencies. It is calculated by dividing the market cap of Bitcoin by the total market cap of all cryptocurrencies and multiplying it by 100. It can be used as a way of seeing whether it is worth investing in Bitcoin or, instead, in altcoins.

For many years, there has been anticipation of a mythological flippening, where Ethereum overtakes Bitcoin and becomes the dominant cryptocurrency in the market. You might think this would be easiest seen by monitoring ETH's price and market cap, but realistically, such activity could also occur through a lowering of Bitcoin's price and market cap, making the BTC dominance percentage uniquely useful at detecting this. Finding this figure is easy as it is displayed at the top of the BitDegree website.

Moving to the traditional markets, the Chicago Board Options Exchange's CBOE Volatility Index, also known as the VIX index , can be used as an alternative to the fear and greed index. This chart measures market expectations of near-term price changes of the S&P 500 index. The VIX Index is infamously nicknamed the "fear index" due to its tendency to rise when stocks fall, and lower when stocks rise.

This means that a high VIX suggests a market sentiment of uncertainty. This nickname began around the late 90s and early 2000s, when the VIX index displayed record highs during the Asian financial crisis of 1997, the dot-com bubble bursting , and 9/11. Since then, traders have used it as a fear measurement. However, bear in mind that it does not measure greed in any way.

Future of the Fear and Greed Index

The crypto fear and greed index is a relatively new tool, and so it is fair to assume that it will experience some changes to its composition and usage. For starters, the way data is calculated may alter, possibly being influenced by emerging AI analytic tools on the market. This could offer wildly different results than currently, although this is not confirmed, and it might not make too much alteration.

Another change that might occur is that crypto fear and greed indices may show indicators for whether whales or institutional investors are moving the market, as opposed to retail traders. While this distinction is less meaningful in the traditional markets, the crypto markets have always had a strong reliance on and involvement from individuals who enter the market, due to the anti-corporate streak running through it.

This type of a distinction could be useful as institutional investors are sure to think differently than retail traders due to their educational background, the number of funds they move, and their intentions. Such a metric could help add clarity to traders and give them much-needed insights into the way the market is functioning.

In a similar vein, an indicator showing whether financial activity is happening more on decentralized exchanges or centralized ones, such as Binance and Coinbase, could be useful. While both sectors are deeply important, a higher reliance on decentralized exchanges could suggest more adoption of blockchain ecosystems, and could also be a sign of whether there will be congestion and high transaction fees.

This type of knowledge could additionally be used to measure whether there is fear towards centralized companies and corporations, as well. With some established crypto institutions falling apart, this type of indicator could be good for letting traders know whether they should be working with centralized platforms or whether decentralized networks are smarter to use.

Final Words

Crypto fear and greed indices are extremely useful for capturing live market sentiment, making them a must-have tool for any trader. There is a range of these charts available online, including BitDegree's own crypto fear and greed index. These are great to consult before engaging in any form of crypto trading, and so they should definitely be kept in mind when working with the markets.