Bitcoin Sentiment Plummets To Neutral: Reversal Signal?

Data shows the Bitcoin Fear & Greed Index has declined to a neutral level recently. Here’s what this could imply for the cryptocurrency’s price.

The “Fear & Greed Index” refers to an indicator created by Alternative that tells us about the average sentiment present among the traders in the Bitcoin and wider cryptocurrency markets.

This metric uses the data of the following five factors to calculate its value: volatility, trading volume, social media sentiment, market cap dominance, and Google Trends.

When the indicator has a value greater than 53, it means the investors as a whole share a sentiment of greed. On the other hand, it being under 47 implies the dominance of fear in the market. All values in the range lying between these cutoffs correspond to a net neutral mentality.

Besides these three main sentiments, there are also two ‘extreme’ ones called the extreme fear and extreme greed. The former occurs at or above 75 and the latter at or under 25.

Now, here is how the Bitcoin Fear & Greed Index is looking at the moment:

As displayed above, the indicator has a value of 50, which implies the overall sentiment in the market is exactly in the balance. This is a stark change from yesterday, when the index was sitting at 69.

The below chart shows how the Fear & Greed Index has seen its value change over the past twelve months.

Just a few days ago, the indicator’s value was even higher at 78, meaning that the market held a majority sentiment of extreme greed. The sharp drop in the investor mentality since then is a result of the Bitcoin recovery rally fizzling out and turning into a price crash.

This is the first time since the first half of October that the index has dropped into the neutral territory. Between then and now, the market only carried an optimistic atmosphere as the asset’s price was following an upwards trajectory.

With this reset, though, it appears the investors are now unsure about the future of the cryptocurrency. If history is anything to go by, this may not actually be a bad thing.

Bitcoin and other digital assets have generally tended to move in a way that goes contrary to the expectations of the crowd; extreme greed is where major tops have occurred, including the one from last year, and extreme fear is where bottoms have taken place.

While the market hasn’t become fearful yet, the fact that there is no longer an excess of hype could still be something that can help the price find a reversal. It now remains to be seen how BTC and the market sentiment would develop in the coming days.

At the time of writing, Bitcoin is floating around $94,200, down almost 4% in the last seven days.