Investing in the Crypto market is definitely not easy but with proper crypto knowledge, it can open unlimited opportunities. So, if you are preparing to enter the Crypto market, let’s educate yourself, and what could be better than starting with the Crypto Fear and Greed Index?
The crypto market is highly volatile – it is known. However, what you do not know is that you can visit popular investment education firms like immediatesedge.de and learn when to enter the crypto market and how to exit with the maximum profit!
There are many tools that can help you in decision-making and Crypto Fear and Greed Index is one such amazing tool. In this article, let’s find out how you can use the Crypto Fear and Greed Index tool and calculate the crypto market momentum.
What Is the Fear & Greed Index?
Developed by CNN Business, the Crypto Fear and Greed Index is an effective tool for analyzing market sentiment. Originally designed for the stock market, the Crypto Fear and Greed Index proved its effectiveness in the crypto market too!
Crypto Fear and Greed Index was first introduced by Alternative.me in the Crypto market to help cryptocurrency traders understand the current market trend based on the data collected [data collected sentiment-based and included many factors]. The correct use of Crypto Fear and Greed Index tools can help crypto traders get accurate insights into the market sentiment.
In simple terms, Fear and Greed represents the willingness of the influence of investors to certain Cryptocurrencies. Extreme fear represents market uncertainty and reluctance of the investors to buy cryptos. This is also an opportunity for those who are looking forward to buying the dip. On the other hand, extreme greed represents the upcoming correction in the market and a strong indicator to sell before the bubble collapses.
How Is the Index Calculated?
The Crypto Fear and Greed Index calculates the Crypto market sentiment and trend based on multiple factors that include market volatility, market momentum & volume, and Bitcoin dominance. Let’s explore all these factors and their contribution to the overall rating:
1. Volatility (25%)
Volatility is one of the dominating factors that directly affect the crypto buyers’ sentiment. The Volatility factor contributes 25% in the main index representing market anxiety, as well as risk appetite based on crypto price fluctuation. Higher volatility represents ‘anxious’ market sentiment whereas the lower volatility represents calm and secure markets. The current volatility of the market is assessed by comparing the 30 and 90-day averages as volatility takes time to trigger panic buttons through a chain reaction.
2. Market Momentum and Volume (25%)
Like volatility, Market Momentum and Volume also contribute 25% to the index board. This factor simply indicates the acceleration of the market. Market momentum can go upwards and downwards from time to time and the effect can be reflected in the trading volume. Higher trading value represents higher participation aligning with the rising greed in the positive crypto market.
3. Bitcoin Dominance (10%)
Bitcoin is still playing a major role in the Crypto market. Hence considering bitcoin dominance is a must to calculate the Crypto Fear and Greed Index. Increasing Bitcoin dominance represents that traders are moving their investments from risky crypto coins to relatively safer Bitcoin. In other words, rising Bitcoin dominance indicates traders are playing a safer game influencing the new investors to make the right choice.
Crypto Fear and Greed Index is a reliable indicator to analyze the Crypto market in the short term. Yes, the indicator is based on the calculation of the market trend and sentiments, which are changing now and then. There are too many factors that can uplift the market sentiment or drag it down. Therefore, being a crypto investor, you should continue updating your knowledge and trust the index!