Bitcoin Fear and Greed Index Plummets to Six-Year Low: Is the Worst Over?

Does this mean BTC has finally bottomed out or is there more pain ahead?

The past few weeks have been brutal for BTC and the rest of the market. The largest digital asset plummeted by about $30,000 in less than ten days, bottoming out (at least for now) on Friday morning, dropping to $60,000.

Given this disaster, it’s almost expected that overall investor sentiment has fallen just as sharply. In fact, it is at a multi-year low.

Fear continues to dominate

Because the cryptocurrency markets (as well as most other financial fields) can be highly emotional, the Fear and Greed Index was created to demonstrate the rapid changes. Market momentum and overall volatility account for half of the index’s bottom line, which ranges from extreme fear (0) to extreme greed (100).

It’s no wonder that things have largely gone downhill lately. Bitcoin’s price peaked at over $95,000 in mid-January, and was above $90,000 just over ten days ago – on January 28. However, what happened next was difficult (if not impossible) to predict, as the value plummeted by $30,000 in days to the lowest price level in over a year.

Although the price jumped back to $69,000 at the time of writing, this was not enough to take the index to a higher level. The metric has been consistently declining lately, dropping to 6, the lowest level since August 2019.

Is a rebound next?

As Warren Buffett has said in the past, investors should be afraid when others are greedy, and vice versa. As such, they should be greedy now, right? Previous examples of sharp rises or falls in the metric have led to immediate trend reversals, which could finally provide some hope for the bulls.

However, going back to developments in 2019, history doesn’t exactly support this story. At that point, BTC had actually started to recover from the late 2018/early 2019 bear market and was trading 2-3x higher than the $3,500 bottom. Nevertheless, it could not break the $10,000 barrier and failed to do so for months.

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Then came 2020 and a big black swan event (the COVID-19 crash), and BTC fell further before finally going on the offensive. It took the cryptocurrency more than a year to get above $10,000. But the good news is that the company has never looked back and has never traded within a four-figure price range since.

The moral of the story now is that extreme fear dominates the markets, which is usually followed by a sharp trend reversal. However, the current market environment is quite uncertain given the increasing geopolitical tensions, internal problems, market instability, the explosion of different asset classes, and so on.