As the downtrend in the crypto market continues, so does extreme fear. What is inspiring the sell off? Is it Omicron? Or is it Evergrande? Is it a conspiracy? Or is it the holidays? All of those questions and more have had the Fear and Greed Index pointing to the left for a month in a row. What does this mean? Where do we go from here? That is what we are here to explore.
Related reading | Blood on the Streets: Crypto Market Turns Fearful As Bitcoin Sinks
But first, let's talk about the Fear and Greed Index. One of many Bitcoin indicators, it measures general market sentiment right now. Zero is extreme fear. One hundred is extreme greed. And the indicator oscillates between those two at any given time. The cryptocurrency market has been said to be very emotional. The fear and greed index is there to prevent investors from making irrational decisions based on sentiment alone.
Fear And Greed Index shows Extreme Fear | Source: Arcane Researchโs The Weekly Update
What does the fear and greed index say now?
According to Arcane Research Weekly Update, fear has settled in:
"The Fear and Greed Index has flagged 'Fear' or 'Extreme Fear' for almost a month in a row. The last time we saw market sentiment this long was in the early summer, when market sentiment was scared for more than two months in a row. With the sustained consolidation of bitcoin, the late-fall euphoria has subsided and overall sentiment looks very negative at this time. "
The report also says that, "during constant liquidations, bitcoin tends to outperform the general crypto market." And this time was no exception, BTC "outperformed all indices so far in December, with a negative return of -18% after a relatively flat second week of trading this month." On the other hand, "the Small Cap Index has experienced a loss of almost a third of its value in December." What does this mean in general?
โThe dominance of bitcoin has risen 1.13% in the last week. This is the third time we have seen a bitcoin dominance trough at 40% in 2021. The last two times were on May 19 and September 13. It seems that the 40% threshold is a difficult area for alts to maintain. "
BTC price chart for 12/15/2021 on Eightcap | Source: BTC/USD on TradingView.com
What can we expect in the future?
To get our dose of technical and chain analysis, let's give the microphone to the Fear and Greed Index Newsletter:
โAn important factor here is the support band of the cycle. We cannot ignore the fact that Bitcoin just closed 2 consecutive weeks below the market support band. Historically, this meant that we would see a longer consolidation phase before we could have a true reversal in trend. The bottom line here is as follows, as long as Bitcoin closes the week below the cycle's support band, we shouldn't expect a major breakout in price. "
However, every dog โโhas his day. A week ago, analyzing a very similar market sentiment, NewsBTC informed you:
โA 'Fear and Greed' index of extreme fear levels, according to certain analysts, has historically preceded local funds from the cryptocurrency market. However, a race to new highs could pose a stumbling block as the macroeconomic outlook becomes complex. "
Related reading | Bitcoin Price Bloodbath: Is El Salvador a "News Selling" Event?
It is also important to remember that only two months ago we were in a similar situation and the the feeling made a full 180 turn in a matter of weeks.
โThe indicator dropped to extreme fear on September 30, but in less than two weeks sentiment has already recovered to extreme greed. The report notes that this shows how quickly sentiment can change among the crypto market. "
With that being said, and a disclaimer that this is not financial advice, in a situation like this there is only one thing we could say ... hodl the line!
Featured Image: PublicDomainPictures on Pixabay| Charts by TradingView
