Data shows the Bitcoin Fear & Greed Index has rebounded from the neutral zone, a sign that market indecisiveness was short-lived.
The metric uses data of these five factors to determine the investor mentality: trading volume, volatility, market cap dominance, social media sentiment, and Google Trends.
To represent the sentiment, it uses a numerical scale running from zero to hundred. All values above 54 correspond to greed among the investors, while those under 46 to fear in the market. The region between the two cutoffs corresponds to a net neutral trader sentiment.
Historically, Bitcoin and other cryptocurrencies have tended to move in the direction that goes contrary to the expectations of the majority. The likelihood of such a contrary moving occurring has also only gone up the more sure the investors have become of the asset’s direction.
As such, when the Fear & Greed Index is in the extreme zones, tops and bottoms can be probable to occur. Investors using a trading technique called contrarian investing exploit this fact. Warren Buffet’s famous quote encapsulates the idea: “be fearful when others are greedy, and greedy when others are fearful.”
Now, here is how the current cryptocurrency market sentiment looks, according to the Fear & Greed Index:
As is visible above, the Fear & Greed Index has a value of 64, which suggests that the investors as a whole share a sentiment of greed. The picture was different just yesterday, when the market held a neutral mentality.
The weekend low of 53 in the metric was likely a result of the bearish action in Bitcoin that took its price to $112,000. Similarly, the return of greed may be caused by the slight recovery in the asset.
The Fear & Greed Index spent July in and around the extreme greed zone, ending the month at a value of 72. Given this trend, the plunge this month may be an effect of the streak of optimism among the investors.
With sentiment now observing a reset, it remains to be seen how Bitcoin will develop from here on out and whether market sentiment would get overheated once more.
At the time of writing, Bitcoin is floating around $114,900, down around 2.5% in the last seven days.
