Bitcoin (BTC) has been trading in a fairly tight range around $26,000 for almost a month with few exceptions. Before the big price drop on August 16, Bitcoin was trading around 12 percent higher at just over $29,000. It is clear that market sentiment is significantly worse now than it was a month ago. What is the current state of affairs and what can be derived from this for the BTC price?
Bitcoin Fear and Greed Index
The “Fear & Greed Index” is a well-known indicator that measures sentiment in the broader crypto market. Specifically, the Fear & Greed Index, as the name suggests, illustrates how strongly the market is driven by fear or greed at any given moment.
The index is displayed on a scale of 0 to 100, where a value of 0 indicates extreme fear sentiment while a value of 100 indicates extreme greed in the market.
The index is often used as a tool for investors and traders. For example, an extremely greedy score can be a sign of an overheated market that needs to be corrected.
A reading above 54 indicates greedy sentiment and a reading below 46 indicates fearful sentiment in the crypto market. The Fear & Greed Index is currently at 41. However, looking at the development of the indicator, it is clear that a local low of 30 was reached on September 12th.
Of course, this had everything to do with the drop in Bitcoin’s price at the time. BTC price lost 2.5 percent to reach its crucial support level of $24,800.
This was one of the few outliers in the Fear & Greed Index in recent weeks. While Bitcoin price moved like a magnet around $26,000, the indicator remained stuck at around 40. It was only at the end of August, when Bitcoin briefly rose to a high of $28,000, that the indicator reached a value of 52.
Impact on BTC price
Values of 25 or lower indicate extremely fearful sentiment among crypto investors and have historically often coincided with BTC price lows. Conversely, values of at least 75 (extreme greed) often coincide with local peaks.
Bitcoin generally tends to do the opposite of what most investors expect. This expectation is strongest in the extreme areas, which is why trend reversals often occur.
Should Bitcoin slide again, this time falling below the $24,800 support zone, the index could end up in extreme fear territory. Perhaps this will be the impetus that will start a trend reversal.