Fear and greed index

The Fear & Greed Index is an analytical tool used to assess the emotional state of participants in financial markets, including cryptocurrency markets.

The index was developed by Alternative.me for the cryptocurrency market, but its concept comes from traditional financial markets, where a similar indicator was created by CNN Money for the stock market. The index measures investor sentiment based on the idea that excessive fear can lead to asset sales, and excessive greed can lead to speculative price increases.

The index is calculated on a scale from 0 to 100, where:

• 0-24: Extreme fear (investors panic, sell assets, prices fall).
• 25-49: Fear (the market is in a state of uncertainty, participants are cautious).
• 50: Neutral state (balance between fear and greed).
• 51-74: Greed (investors are actively buying, prices are rising).
• 75-100: Extreme greed (the market is in a state of euphoria, a "dump" is possible).

How is the Fear and Greed Index calculated?

The index for the cryptocurrency market, in particular bitcoin (BTC), is calculated on the basis of several components, each of which has its own weight in the overall index:

1. Volatility (25%): Analyzes the current volatility of Bitcoin compared to its average values over the past 30 and 90 days. High volatility often indicates fear, while low volatility often indicates stability or greed.
2. Market momentum/trading volume (25%): High trading volume and a strong upward momentum may indicate greed, while a decline in volume may indicate fear.
3. Social media (15%): Sentiment on Twitter (now X) and other platforms is analyzed. A large number of positive posts about bitcoin indicate greed, and negative posts indicate fear.
4. Bitcoin's dominance (10%): An increase in BTC's dominance (its share of the total market capitalization) may indicate fear as investors move to a "safer" asset, and a decrease may indicate greed as they buy altcoins.
5. Trends in search queries (10%): Google Trends queries are analyzed. For example, the growth of "Bitcoin scam" queries may signal fear, and "Buy Bitcoin" may signal greed.
6. Survey (15%): Although this component is not always used in a cryptocurrency index due to the complexity of data collection, it plays an important role in a traditional CNN index.

Historical examples and impact of the Fear and Greed Index

The Fear and Greed Index has become a popular tool among crypto investors because it helps predict market behavior during periods of emotional extremes. Here are some historical examples that illustrate its value:

December 2017 - Extreme greed and the peak of bitcoin.

At the end of 2017, bitcoin reached an all-time high of $19,783 (December 17, 2017). During this period, the Fear and Greed Index for the cryptocurrency market reached values of 95-100, which corresponded to "extreme greed." The market was gripped by euphoria: trading volumes were growing, social media was booming with positive mentions, and Google queries such as "How to buy Bitcoin" peaked. However, after that, Bitcoin entered a bear market, losing over 80% in value by the end of 2018, when the index dropped to 5 (December 2018), signaling "extreme fear."

March 2020 - Extreme fear and the COVID-19 pandemic
On March 12, 2020, when global markets collapsed due to the COVID-19 pandemic, bitcoin fell from $7,935 to $3,850 in one day. During this period, the Fear and Greed Index dropped to 10, which corresponded to "extreme fear." Bitcoin's volatility soared, trading volumes plummeted, and BTC's dominance grew to 65% as investors shunned risky altcoins. This moment became a turning point: after hitting bottom, the market began to recover, and by the end of 2020, bitcoin reached $29,000.

November 2021 - Greed and a new high
In November 2021, bitcoin hit a new all-time high of $69,000 (November 10, 2021). The Fear and Greed Index fluctuated between 75-84, indicating "extreme greed." Trading volumes on exchanges such as Binance reached a record $80 billion per day, and Google Trends queries for "Bitcoin price prediction" increased by 200% compared to average values. This period of euphoria was preceded by a correction: by June 2022, bitcoin had fallen to $17,600, and the index dropped to 7.

March 2025 - Current status
As of March 10, 2025, the Fear and Greed Index for the cryptocurrency market is 20, which corresponds to the "fear" zone. Bitcoin is trading at $81,559 after a weekly drop of 14%. The total market capitalization is $2.640 trillion, with bitcoin dominating at 61.26%. The next day, March 11, the index dropped to 24, and the price of bitcoin fell to $76,606 before recovering to $80,314.

This reflects a correlation with the stock market, which has been falling since February 19, 2025, and geopolitical tensions over allegations of possible strikes on Iran.

Value of the Index for investors

The Fear and Greed Index is a tool for assessing market sentiment and can help investors make decisions:

• Extreme fear (0-24): Often signals buying opportunities as the market may be oversold. For example, in March 2020, the index at 10 preceded Bitcoin's rise of 650% by the end of the year.
• Extreme greed (75-100): May indicate a risk of correction due to overbought conditions. In December 2017, the index at 95 predicted an 80% drop in bitcoin.
• Neutral state (about 50): Usually reflects stability when the market is not prone to sharp movements. For example, in July 2020, the index was hovering around 50, and bitcoin was trading in the range of $9,000-$10,000 before the bullish trend began.

Criticism and limitations

Despite its popularity, the Fear and Greed Index has limitations:

• Subjectivity: Data from social media and search queries can be distorted by bots or manipulated.
• Bitcoin addiction: The index is focused on BTC, so it does not always accurately reflect the sentiment towards altcoins.
• Short-termism: The index is effective in assessing current emotions, but does not take into account long-term fundamental factors such as regulation or technological change.