Fear and Greed Index: A Sentiment Thermometer for the Crypto Market

Core Viewpoints

Cryptocurrency trading seems to emphasize rational analysis, but in reality, emotional fluctuations play an equally critical role. When should the market buy, and when should it run? It might be worthwhile to take a look at the Fear & Greed Index, which serves as a barometer. This system measures market sentiment on a scale of 0 to 100—0 represents extreme fear (buying signal), and 100 represents extreme greed (caution against overheating).

How is this index derived?

The financial division of CNN, a subsidiary of American Cable News Network, pioneered the Fear and Greed Index to gauge stock market sentiment. The core logic is straightforward: humans make investment decisions under two extreme emotions—one is the fear of missing out (FOMO), and the other is greedy profit-seeking. The website Alternative.me has adapted this methodology to the cryptocurrency market, updating it daily, and it has now become a reference tool for many traders.

How to Calculate (6 Key Indicators)

1. Price Volatility (25% share)

• Compare the amplitudes of the past 30 days and 90 days
• Significant volatility → Market fear → Increased selling pressure
• Steady rise → Improved sentiment

2. Market Momentum + Trading Volume (25% share)

• Track price trends for 30-90 days
• The larger the trading volume, the higher the participation, and the stronger the greed factor.
• vice versa

3. Social Media Activity (15% share)

• Monitor the volume of topics and interactions about Bitcoin on X and Reddit
• Mentioning volume exceeds historical average → may signal a bull market
• Be careful of people using public opinion to “pump and dump”.

4. Market Questionnaire Survey (15% share)

• 2000-3000 users participate weekly
• Investigate the overall market atmosphere and expectations
• Optimistic feedback → may boost the market

5. Bitcoin Dominance (10% share)

• The higher the market capitalization ratio of BTC → The lower the market risk appetite
• High dominance means that investors are conservative and bearish on risk.
• Conversely, if altcoins are leading → it indicates that retail investors are betting on high-risk, high-reward.

6. Google Search Popularity (10% share)

• Track the search volume of “how to buy Bitcoin” vs “how to short Bitcoin”
• Increase in buying inquiries → Possible bull market approaching
• Increased inquiries for short selling → signal of decline risk

Advantages and Disadvantages of This Tool

use

• Veteran's Cheat Code: When the market is filled with FOMO, smart traders go against the tide, buying the dip in extreme fear and taking profits in extreme greed.
• Emotional Decision-Making Brake: The index provides clear signals to help you calm down.
• Beginner's Guide: Simplifies market psychology for better understanding.

ceiling

• Only suitable for short term: It is not very meaningful for long-term holders to use this, as the index will oscillate repeatedly during bull and bear cycles, which can easily give false signals.
• Neglecting Ethereum and Altcoins: The index primarily focuses on Bitcoin, which does not provide a comprehensive assessment of the entire ecosystem.
• Missing the Halving Market: There is usually a significant market movement within months after a Bitcoin halving, but the index may underestimate this potential.

How to Use It Reliably

❌ Incorrect Usage: Treating the index as the sole basis for decision-making.

✅ Correct usage:

• As auxiliary signals, combined with technical analysis, on-chain data, and fundamental research.
• Reference tool for day traders, not suitable for long-term HODL.
• Extreme fear (0-25) may consider positioning, extreme greed (75-100) requires vigilance.
• Flexibly apply based on personal risk tolerance and trading cycle

Final Words

The Fear and Greed Index is like a “thermometer” for the stock market, helping you sense whether the market is heating up or has a fever. But don’t treat it like a doctor—real diagnosis (investment decisions) still relies on your own research skills. For long-term investors, focusing on fundamentals offers greater returns than fixating on sentiment index. To learn more analytical tools, you can study on-chain metrics and the DYOR method.