THE cryptocurrency market is going through a major bull run with digital currencies hitting all time highs in an unprecedented market in November 2021.
Measuring and assessing the crypto market can be a difficult task but one indicator of the market’s state is the Fear & Greed index.
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What is the cryptocurrency Fear & Greed index?
The Fear and Greed index is a tool used to measure investors feelings towards the market.
The index indicates whether the market is bullish (markets experiencing sustained growth) or bearish (markets experiencing sustained decline), and it is made up of two opposing emotions, fear and greed.
The main idea of the index is that when investors are worried, prices of stocks will trade at much lower than there actual value and when investors get greedy it leads them to pay well over the odds of the stocks intrinsic value.
Extreme fear suggests that investors may be too worried and that there is an opportunity for buying while when investors are being too greedy the market is due for a correction.
How is the Crypto Fear and Greed Index calculated?
The index is scored from 0-100.
0 suggesting that investors are overly bearish or fearful and 100 suggesting that investors are being overly bullish and greedy.
Extreme fear is defined as a score between 0 and 24, fear is between 25 and 49. Neutral is 50, 51 to 74 is greed and anything above 75 is extreme greed.
The crypto Fear and Greed index uses six indicators to calculate its score.
These being volatility, market momentum/volume, social media, surveys (currently paused), dominance and trends.
The index effectively measures investors emotions towards the market and informs them on how the market is doing in a simplified form.
There are differing opinions on the effectiveness of the crypto fear and greed index however, historically, it has been a reliable indicator of significant change.
Investors tend to agree that the index is a useful tool in assessing markets as long as it is not the only tool used to make decisions and you do your own research.
Meanwhile, as of November 2021 the crypto markets continue to soar.
This post first appeared on Thesun.co.uk
