It looks like Bitcoin investors are feeling pretty optimistic these days, because following the cryptocurrency’s surge to a new all-time high, the sentiment among traders has shifted into what’s known as “extreme greed.”
The Fear & Greed Index
The “Fear & Greed Index,” created by Alternative, is a handy tool that gauges the mood of traders in the Bitcoin and the crypto markets.
This index scores sentiment on a scale from zero to 100, using data from five key factors like volatility, trading volume, market cap dominance, social media sentiment, and Google Trends.
When the index scores above 53, it indicates that investors are feeling greedy. Conversely, a score below 47 suggests fear is creeping into the market. Scores between these two thresholds not so surprisingly indicate a neutral outlook.
But there are also two special zones, the extreme greed, when scores above 75 and extreme fear, below 25.
Right now, the index is sitting at 77, signaling that traders are definitely in extreme greed territory. Just yesterday, the market was still in the regular greed zone.
What does Extreme Greed mean? Well, being reckless, usually.
Historically, extreme sentiment levels have been significant periods for Bitcoin. Major price peaks and troughs often occur when the index hits these extremes.
Interestingly, there’s an inverse relationship at play, as extreme greed usually leads to price tops, while extreme fear tends to mark price bottoms.
Looking back at recent trends, we can see that when Bitcoin peaked earlier this year, the Fear & Greed Index soared into extreme greed territory.
Now that the market is buzzing again after breaking through its latest all-time high, some analysts wonder if we might see another peak for Bitcoin soon.
More room to grow?
Typically, major price tops happen when the index reaches particularly high levels. For example, during that earlier peak, the index hit 88.
This suggests that there might still be some room for sentiment to heat up before we hit any bigger roadblocks in this rally.
But the main question is, what does all this mean for investors? While it’s always exciting to see prices rise and sentiment grow, it’s pretty important to stay cautious.
Extreme greed can signal that a correction might be on the horizon, and correction here means dip.
