Despite reaching a new all-time high in November at $69K, BTC has dropped down to $46.6K, with its market sentiment at 23 on the Bitcoin fear and greed index. With that, the market sentiment now moves the market into a state of "extreme fear."
Bitcoin Fear and Greed Index Current Sentiment
Bitcoin has had many ups and downs, and despite in the span of the last few months and despite predictions saying the asset could go up to $100K before the end of the previous year, BTC ended 2021 just shy of $50K. The Bitcoin fear and greed index is now rated 23 out of 100.
In order to understand the importance of the fear and greed index, it is important to understand what the scale means exactly. As per Investopedia, the index measures two primary emotions that influence how much investors are okay with paying for stocks or assets.
What Happens in Extreme Fear and Extreme Greed
According to the article, "extreme fear" leads to an asset trading below its intrinsic value, while excess greed leads to an asset trading above its intrinsic value. There is, to add, a way to compute the index, especially when used in the stock market.
The article is computed through following stock price strength, stock price momentum, stock price breadth, put and call options, market volatility, bond demand, and safe-haven demand. Besides, the article cited some researchers saying that greed and fear can cause people to set aside common sense and self-control to provoke change.
Tips to Overcome Fear and Greed
Investopedia shared how traders and investors can overcome fear and greed. According to them, the best way for people to overcome fear and greed when it comes to trading is to start by developing a trading plan and strictly sticking with it.
A trading plan works as a way to prevent acting on impulses as actions could deviate from a plan, including overleveraging, doubling down on losing points, or removing stops on losing positions. Another way to help traders combat emotions is by decreasing any emotional effect of fear and greed by lowering the overall trading size.
Why Understanding the Bitcoin Fear and Greed Index is Important
An additional way for traders to avoid giving in to fear and greed is to keep a trade journal. The actions will help the investor or trader hold themselves accountable for the trades that they make.
As per the website alternative.me showing the current status of the Bitcoin fear and greed index, there is a good reason why investors and traders should learn this metric. As per the website, the "crypto market behavior is very emotional."
Bitcoin Fear and Greed Index is 23 ~ Extreme Fear
— Bitcoin Fear and Greed Index (@BitcoinFear) January 4, 2022
Current price: $46,671 pic.twitter.com/Qtjip2uFkp
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Written by Urian B.
