Why Crypto Market Fear Mirrors Lull In Volatility

Data shows the crypto market fear has been mirroring the volatility in the market recently, as the latest burst in the price of Bitcoin has improved investor sentiment.

Crypto Fear And Greed Index Escapes Out Of “Extreme Fear” Zone

The “fear and greed index” is an indicator that tells us about the general sentiment among investors in the cryptocurrency market.

The metric uses a numeric scale that runs from zero to hundred for displaying this sentiment. All values above fifty signify greed in the market, while those below the threshold suggest fear amongst the investors.

Besides these two, there also exist two special sentiments called the “extreme fear” and the “extreme greed.” These take place at values lower than 25 and greater than 75, respectively.

The significance of these zones is that coins like Bitcoin have historically observed bottom (extreme fear) and top (extreme greed) formations during such periods.

Now, here is a chart from this week’s Arcane Research report that shows the trend in the crypto fear and greed index over the past year:

Looks like the value of the metric has been mostly flat in recent weeks | Source: Arcane Research's The Weekly Update - Week 42, 2022

As you can see in the above graph, the crypto fear and greed index had been moving sideways in the 20 to 25 range for over a month when the report came out, which was two days ago.

During this period of stagnation, the volatility in the market was pretty low as Bitcoin and others had all been consolidating hard.

In the last couple of days, however, this has clearly changed as BTC’s price has shot up. As a result of this fresh volatility, this is how the fear and greed index’s value looks like today:

The value of the metric seems to be 32 at the moment | Source: Alternative

The crypto market sentiment has improved in the last two days, exiting the extreme fear zone, but still finding itself inside fear.

The investor mentality mirroring the volatility isn’t a surprise, as the two are related. The index also accounts for this, as 25% of its value depends on the volatility metric.

The crypto market has been inside the fear zone for almost a year now. If it remains in this area for two more weeks, investors will have seen one full year of fear.

BTC Price

At the time of writing, Bitcoin’s price floats around $20.5k, up 7% in the last week.

The BTC price has surged up over the last couple of days | Source: BTCUSD on TradingView

Featured image from Art Rachen on Unsplash.com, charts from TradingView.com, Arcane Research