The quickly deteriorating price landscape across the entire market has inevitably impacted how investors view it, with fear taking over.
Data from Alternative.me shows that the popular Bitcoin Fear and Greed Index has tanked to its lowest position in three months. The good news is that the last time it was this negative, BTC broke out.
Extreme Fear Takes Over
The idea of the index is to showcase the highly emotional nature of the cryptocurrency market, which, as the graph below will demonstrate, tends to fluctuate almost as rapidly as prices. It gathers data from several key sources, including overall market volatility, market momentum and volume, social media bias, and BTC’s dominance over altcoins. Surveys were also included in the past but have been paused for a while now.
The end results range from 0 (extreme fear) to 100 (extreme greed). Since price moves are one of the main sources, the metric skyrocketed in late August and mid-September to above 70 (or close to extreme greed territory). However, as Warren Buffett has said more than once, investors should be fearful when others are greedy, and this narrative proved correct once again after the September peak at $87,000.
The cryptocurrency fell hard in the following month and a half. Nevertheless, the metric was still above 60 in late October when the asset briefly jumped to $85,000. However, the latest market developments resulted in another major drop in the metric, which tumbled to 25 for the first time since August 5.
Why Is That?
There’s no great mystery behind this answer. The most obvious reason is that bitcoin’s price has nosedived hard over the past few weeks. It began with the Binance hack, which drove the asset from $81,000 to $76,000. Although it rebounded in the following days, the US midterm results came next, sending it on a massive rollercoaster, followed by the subsequent Wall Street crash on Thursday.
BTC reacted to all of those developments, mostly by charting new multi-month lows. The culmination came on Friday, when the asset slipped to its lowest level since the August breakout at $74,800 before rebounding to $76,000.
There’s a caveat to Buffett’s quote from above, as he thinks that investors should be greedy when others are fearful as well. This means that the current landscape could be a blessing in disguise. The last time the metric was this low, BTC indeed skyrocketed in just a few weeks. Nevertheless, we know that history is no indication of future price moves, but it does tend to rhyme.
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