Bitcoin: Fear & Greed

Benjamin Cowen

Introduction to the Fear and Greed Index

The Fear and Greed Index is a tool used to understand market sentiments, indicating whether the market is fearful or greedy. It is composed of several components including volatility, market momentum, volume, social media surveys, dominance, and trends.

Current State of the Fear and Greed Index

  • The current Fear and Greed Index score is 72, indicating a greed sentiment in the market.
  • The index is not as elevated as it was the previous week, which was in the extreme greed range.

Historical Context and Comparison

  • The Fear and Greed Index has failed to reach and sustain high levels (90-100 range) this cycle, unlike in previous cycles such as 2020.
  • Each time the index approaches the 90-100 range, it only stays there for a couple of days before dropping, suggesting a difficulty in achieving a prolonged period of extreme greed.
  • This cycle is compared to 2019, where after reaching a mid-cycle top, the market experienced a six to nine-month downtrend.

Market and Economic Factors

  • The current monetary policy of quantitative tightening is different from the quantitative easing seen in previous cycles, which might contribute to the inability to sustain high greed levels.
  • The Advanced Decline Index for the top 100 cryptocurrencies has been in a downtrend since 2021, similar to the period from 2018 to 2019, indicating more assets are declining than increasing.
  • The shift in monetary policy, such as a pivot from quantitative tightening to quantitative easing, could significantly impact market trends.

Impact on Altcoins and Bitcoin

  • The expectation for an "alt season" similar to 2021 has not materialized, with altcoins failing to sustain rallies and instead setting lower highs.
  • Bitcoin has performed well, but the overall market sentiment and macroeconomic conditions have not supported a broad altcoin rally.

Future Outlook and Monetary Policy

  • The Federal Reserve's decisions on monetary policy, including potential pivots from quantitative tightening to easing, will be crucial in determining future market trends.
  • Concerns over inflation and political pressures could influence the Fed's decisions, creating uncertainty in the market.

Conclusion

  • The Fear and Greed Index provides valuable insights into market sentiments but should be considered in the context of broader market and economic trends.
  • The current cycle's inability to sustain high levels of greed, as indicated by the Fear and Greed Index, reflects underlying differences in monetary policy and market conditions compared to previous cycles.