During the first half of 2018 the general consensus was that $6,000 was the bottom in Bitcoin, and that the bear market will likely end in 2019. This has quickly changed with the recent cryptocurrency sell-off. Reports are showing that during the latest cryptocurrency sell-off that started in mid-November, investors that got into cryptocurrencies in 2016 are now selling for the first time and the number of capitulation related social media posts has completely exploded.
There is clearly blood on the streets. Could the cryptocurrency market be close to a reversal?
Cryptocurrency Fear and Greed Index
This brutal sentiment shift can be clearly visualized in the “Crypto Fear and Greed” index by alternative.me. The index has currently reached the point of “Extreme Fear”, which has historically shown to be a good buying opportunity.
Fear and Greed Sentiment History
This is the historical development of the cryptocurrency fear and Greed Index. A value of 100 means peak Greed, and is usually a good opportunity to sell some holdings or to short the market, while a value of 0 means maximum fear and is usually a good short-term buying opportunity.
This index is important because it is a known fact that in markets the majority of participants are usually always wrong, and in order to outperform the market investors need to adopt a contrarian mindset.
How does the Fear and Greed Index work?
The Fear and Greed Index obtains its data through a clever combination of volume, volatility, surveys, trends, Bitcoin dominance, and social media.
That being said, the index should never be used as the only indicator for an investment strategy, and it is always important to also evaluate fundamental factors.