Bitcoin Fear and Greed Index Plummet to 6-Year Low: Is the Worst Over?

Does this mean BTC is finally over or is there more pain ahead?

The past few weeks have been brutal for BTC and the rest of the market. The major digital asset dropped nearly $30,000 in less than ten days, and dropped (at least for now) on Friday morning to $60,000.

Given the crisis, it is likely that investor sentiment will drop significantly. In fact, it has reached multi-year lows.

Fear Continues to Consume

Since the cryptocurrency markets (and other financial sectors) can be very emotional, the Fear and Greed Index was created to reflect the rapid changes. Market volatility and overall volatility account for part of the index’s final score, which ranges from extremely fearful (0) to extremely greedy (100).

So, it’s not surprising that it’s been down a lot lately. The price of Bitcoin reached $95,000 in mid-January, and stood above $90,000 just ten days ago – January 28. However, what happened next was difficult (if not impossible) to predict, as the commodity fell by $30,000 in days to its lowest price levels in more than a year.

Although it rebounded to $69,000 at press time, this was not enough to move the needle on the Index. The metric has been trending lower recently and has fallen to 6, its lowest level since August 2019.

Is The Next Rebound?

As Warren Buffett has said in the past, investors should be fearful when others are greedy and vice versa. So, they must be selfish now, right? Previous events of a sharp rise or fall in the metric have led to a quick reversal of the trend, which may bring hope for the bulls.

However, looking back at developments in 2019, history does not support this narrative. At that time, BTC had actually started to recover from its late 2018/early 2019 bear market and traded 2-3x above the 3,500 dollar low. However, it was unable to break into the $10,000 fund and failed to do so for months.

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Then came 2020 and the big black swan event (the crash of the COVID-19), and BTC was previously abandoned before it went on the offensive. It took the cryptocurrency more than a year to break above $10,000. But the good news is that it has never looked back and has never traded within the four-digit range since then.

The moral of the story now is that yes, extreme fear dominates the markets, often followed by sharp trend reversals. However, the current market situation is very uncertain given the tension in the country, internal problems, market volatility, explosion of different asset classes, and so on.