Bitcoin pushes extreme greed. What can you expect here?
Positive sentiment toward Bitcoin has risen quite rapidly over the past few months as the market has made a surprising recovery. This caused the Bitcoin Fear and Greed Index to change from deep fear to deep greed, and that greed continued to grow. Now sentiment is on the verge of extreme greed. This may be good in the short term, but it can essentially turn bearish for prices. How the Fear and Greed Index Works The Bitcoin Fear and Greed Index uses a numeric scale from 1 to 100 to identify how investors feel about the cryptocurrency market at a specific point in time. The index uses a variety of indicators to produce numbers ranging from social media posts to market volatility and momentum. Related Read: Bitcoin Rally Is Not Over Yet, According to This Big Whale The scale is then divided into five distinct categories based on investor sentiment and the numbers in the index. 1-25 is considered extreme fear and is the time when cryptocurrency investors tend to move away from the market due to falling prices. However, this has often proven to be the best time to buy cryptocurrency. Next is the 26-46 range, known as the fear zone. It is a time when we are one step ahead of extreme fear, but it is also a time when investors are not very cautious despite widespread fear. It is also a good time to buy and take the lead on neutral next steps. Neutral is the area between 47 and 52 and indicates a time when investors are uncertain about the market. Mainly investors refrain from making any moves during this period and wait for the market to rise or fall before deciding on their next move. One level above this is the greed level starting at 53 and ending at 75. At this time, investors are returning to the market and prices are recovering quickly. This often ends up being extreme greed between 76 and 100, where important decisions are made. BTC price reclaims $44,000 | Source: BTCUSD on Tradingview.com Bitcoin sentiment remains at 72. The Fear and Greed Index is currently at 72, on the verge of slipping into extreme greed territory which could have a huge impact on the price. Now, looking back at a time when the index score was this high, a picture of bullishness and bearishness is painted. Related Read: The Bulls Are Back: Cryptocurrency Institutional Inflows Surge to 2021 Levels. An example of this is December 2020, when the index rose into extreme greed territory. As investors flocked to the market, it continued to rise, eventually reaching 91. What followed was a slump that sent investors plummeting. The same thing happened between October and November 2021, with scores reaching extreme greed before plummeting. Source: Alternative.me Considering how the Bitcoin price has moved whenever the score is this high, it makes sense that extreme greed can often serve as the best signal. Therefore, when the index enters the 76-100 area, it can often mean it is time to exit the market. If this trend repeats, the Bitcoin price could rise further and see further recovery. But we’re headed for a market crash that could trap bulls who don’t time their exit correctly. Featured image from Trade Santa, chart from Tradingview.com