Ecoinometrics - Greed is good

December 15, 2021

The Bitcoin Fear and Greed Index is supposed to give us some information about the market sentiment. But what does it have to say about Bitcoin’s price?

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Greed is good

The Bitcoin Fear and Greed Index by Alternative takes a bunch of metrics and combines them together to get a measure of the market sentiment.

According to the description of the index those metrics blend volatility, traded volume, momentum, social media sentiment, Bitcoin dominance, surveys and trends. The result is expressed on a scale from 0 to 100 where:

• Close to 0 the market is in a state of extreme fear.

• Close to 100 the market is in a state of extreme greed.

Here is what it looks like historically.

Now you have heard the sentence “be greedy when others are fearful and be fearful when others are greedy”. If we apply this to the Bitcoin Fear and Greed Index we’d expect to see in theory that:

• When the index reports extreme fear it is time to buy.

• When the index reports extreme greed it is time to sell.

But how is that working out in practice?