In this article, we will discuss about Bitcoin fear and greed index, its relation with bitcoin prices, and how bitcoin can reach 18000$ before halving.
Fear and Greed are the two most important human emotions which can influence any market from Stocks to Cryptocurrencies. Due to the High volatile nature of the cryptocurrency market, The impact of these emotions is so high as compared to traditional markets.
CNNMoney developed an index to measure two of these emotions on a daily, weekly and yearly basis to determine the possible direction of US stock markets.
Bitcoin Fear and Greed Index
Alternative.me – A software products marketplace followed the footsteps of CNNMoney and developed the Fear and Greed index for Bitcoin Trading in 2016-17. Alternative’s fear and greed index have become a popular tool among Bitcoin traders to measure market sentiments.
The crypto market behavior is very emotional, and FOMO(fear of missing out) plays a huge role in this market.
- People get too greedy during an impulsive rise in bitcoin prices during a bull run. It is measured as extreme greed, which means the market is due for a correction. People get too fearful during impulsive drop in bitcoin price, or any cryptocurrency. It is measured as extreme fear, that means bitcoin price could reverse to the upside soon.
How Fear and Greed Index measure sentiments
Alternative.me uses these Six data sources to measure market sentiments –
Weightage – 25%
Market Momentum/ Volume
Weightage – 25%
Weightage – 15%
Weightage – 10%
Weightage – 10%
Weightage – 10%
Google Trends Data
Fear and greed index measures sentiments in value from 0 to 100 points.
Index’s value between 0 and 20 points represent Extreme fear. A score below 20 indicates a good buying opportunity.
Index’s value between 20 and 50 points represent fear.
Index’s value between 50 and 60 points represent neutral market sentiment.
Index’s value between 60 to 80 points represents Greed.
Index’s value between 80 to 100 points represent Extreme greed.
Currently, the crypto Fear and Greed index is valued at 50 points, which means sentiment is neutral.
Fear and greed index historical changes and their impact on Bitcoin price
We are using the Previous and current bullish cycle to analyze Historical changes in the Bitcoin fear and greed index in relation to bitcoin prices.
Previous Bullish Cycle ( March – June) 2019
During the previous bullish cycle from March to June last year, Bitcoin saw a massive surge of 266% in value. Bitcoin fear and greed index also saw a rise from 35 to 92. In the above-mentioned chart, we can observe both the Fear and greed index and the Bitcoin price was rising together. Bitcoin had significant bounces from support levels whenever Index score went down below 40, and Bitcoin had pullbacks from resistance levels whenever Index score went above 70.
Bitcoin fear and greed index historical value changes
|Date||Bitcoin price||Index score||Sentiment||Price change(%)||index value change|
|4 March 2019||3650$||35||Fear||NA||NA|
|3 April 2019||5250$||71||Extreme Greed||+45.2%||+36|
|28 April 2019||5000$||39||Fear||-6.5%||-32|
|16 May 2019||8377$||77||Extreme Greed||+60.05%||+38|
|6 June 2019||7496$||27||Extreme Fear||-11.9%||-50|
|27 June 2019||13889$||92||Extreme Greed||+84.47%||+65|
Previous Bitcoin bullish cycle can be divided into three sub-cycles
- Bitcoin price surged by +45% during the first sub-cycle.
- Bitcoin price surged by +60% during the second sub-cycle.
- Bitcoin price surged by close to +85% in third sub-cycle.
Bitcoin price surged by an average of +20% after each sub-cycles.
We will use this finding to predict future bitcoin prices in the current bullish cycle.
Current Bullish Cycle
Bitcoin made previous bearish cycle low at 6450$ on 18 Dec 2019, Bitcoin fear and greed index also hit its yearly -lowest value at 15. Bitcoin is currently trading above 10150$, and Fear and greed index is scored at 50 – which indicates neutral sentiment. Fear and greed index only went above 70 at only one occasion during last week when bitcoin broke above 10500$ resistance.
|Date||Bitcoin price||Index score||Sentiment||Price change (%)||Index value change|
|18 Dec 2019||6450$||15||Extreme fear||NA||NA|
|14 Jan 2020||8900$||56||Neutral||+38.7%||+41|
|24 Jan 2020||8200$||40||Fear||-7.85%||-16|
|13 Feb 2020||10500$||71||Extreme Greed||+28.23%||+31|
Expected Bitcoin price action
According to our findings from the previous bullish cycle (March 2019 -June 2019) –
Bitcoin price rises by an average of +20% after each sub-cycles.
We can divide the current bullish cycle into three sub-cycles.
- First sub-cycle started from 6450$ and ended at 8900$. Bitcoin price recorded close to 39% growth.
Bitcoin is currently trading above 10150$, possible in the second sub-cycle of the major bullish cycle. Bitcoin price had managed to bounce at 9550, which is also a 21 moving average support on the daily timeframe. A Golden cross formation and other technical indicators suggest bullish continuation in short to long term.
If we take a +20% average rise from the previous bullish cycle’s findings into consideration than Bitcoin should reach above 12500$ in the current sub-cycle. After reaching 12500$, We expect a correction to 10500$, and after the third and final sub -bullish cycle bitcoin could reach above 18000$ possibly by the last week of April.
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