- The index, which ranges from 0 for Extreme Fear to 100 for Extreme Greed now sits around 28, suggesting that traders maybe a touch too bearish.
- With bitcoin hovering around the US$50,000 level, some traders have made an argument that the benchmark cryptocurrency may have been oversold.
Because cryptocurrencies are such a nascent asset class, with as many narratives to explain their price movements as there are digital tokens available, it’s understandable that traders hoping to find some method in the madness would fall back on the tools of Wall Street.
And the latest crystal ball being proffered to determine price movements has been a “Fear & Greed” index on where else but Twitter.
Call it the Bloomberg terminal for cryptocurrencies if you will, but the Twitterverse has been aflutter with all manner of explanations for last Saturday’s flash crash in cryptocurrencies that saw bitcoin plunged by over 20% in the span of a few hours.
An estimated US$200 billion in the market cap of digital tokens was wiped out in what some analysts have termed a “healthy deleveraging” of the cryptocurrency markets.
On Wall Street, a traditional Fear-Greed indicator measures investor sentiment based on factors such as volatility, momentum and demand, but the cryptocurrency version, developed by alternative.me, seeks to establish if traders are too bullish (greed) or too bearish (fear) and includes other factors like social media trends and Google search terms.
The index, which ranges from 0 for Extreme Fear to 100 for Extreme Greed now sits around 28, suggesting that traders maybe a touch too bearish.
With bitcoin hovering around the US$50,000 level, some traders have made an argument that the benchmark cryptocurrency may have been oversold.
Because there are so few tools to use in the cryptocurrency universe to gauge sentiment, it is understandable that traders would fall back on whatever is available, even if it’s not an entirely perfect solution.
The reality is that no indicator or index can perfectly predict market movements – there are no silver bullets.
