Crypto Markets are in “Extreme Fear”- Should You Buy Now?

There are three primary drivers behind any type of market where trading occurs. Whether stocks, bonds, precious metals, commodities, or cryptocurrencies — they’re all impacted by these three factors: fundamentals, technicals, and investor sentiment.

That last variable of sentiment is packed with emotions, irrationality, and fear. Very few people have the discipline and will to buy, sell, and hold in a market based solely on pure logic. People tend to rely on their “gut instincts” or pure emotions. Anyone who doubts the role that emotions play in markets and decision-making need only recall this quote by famous economist John Maynard Keynes, “The markets can remain irrational longer than you can remain solvent.”

It’s because of this third emotionally-driven element of the market that the Crypto Fear and Greed Index (FGI) was created.

The FGI, is a free, easy-to-use, interactive dashboard that provides a daily snapshot of the general crypto market sentiment based on a variety of weighted factors such as: volatility, market volume, social media, dominance, and trends. The software automatically scrapes the internet for these variables, plugs those data into its proprietary algorithm, and updates the FGI every 24 hours.

Once the daily FGI score is calculated, it’s plotted on a 0-100 scale with ratings between 0-50 representing varying degrees of “fear” and 50-100 representing varying degrees of “greed.”

As of this writing, the FGI is ranked at 24 which is within the “extreme fear” range, as seen here.

One of the coolest features of the FGI website is that it has been activate since 2018, and you can change the timespan to track the trendline overtime. That’s useful to compare peaks and valleys with market events and conditions to better inform investing decisions going forward. Here’s the trendline for the past year.

If you’re a fan of Warren Buffett and want to invest the same way he does, now would be the perfect time to get into crypto when you consider his famous contrarian investment quote, “Be fearful when others are greedy and greedy when others are fearful.”

There’s wisdom in that perspective because people tend to get greedy when the market is rising, which results in FOMO (fear of missing out). Also, people often sell their crypto in the irrational reaction to volatility or declines. However, the website states that the FGI seeks to remove emotional overreactions based on these two simple assumptions:

Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
When investors are getting too greedy, that means the market is due for a correction.

That makes a lot of sense if you want to “buy low” and “sell high” — and isn’t that the general point of investing?

The FGI is a useful tool; however, it’s only a single data point, to help holders and traders alike evaluate the crypto markets with a bit less emotion and a bit more understanding during times of uncertainty. Regardless, all investment models should be considered with a grain of salt and should only be used as another data point to reference — not the sole reason for buying or selling any asset.