CoinMarketCap releases our very own CMC Fear and Greed Index — check out how it works and how you can use it to navigate the volatile crypto markets!
CoinMarketCap is pleased to introduce a tool that will help you manage the wild swings of the crypto market: our proprietary Fear and Greed Index.
During the recent market turmoil, it became clear that there is no cryptocurrency counterpart to the classic Fear and Greed Index, a well-known equities market analytical tool. The current offerings are focused on Bitcoin, and there is none that captures the market sentiment of over 20,000+ coins listed on CoinMarketCap.
This indicator shows you on a scale from 0 to 100 how fearful or greedy the crypto market is at any given time. Let’s explore in detail how you can use CMC’s Fear and Greed Index to navigate the crypto markets!
What Is the Fear and Greed Index?
The Fear and Greed Index measures investors’ emotions. The idea behind this index is that extreme fear likely indicates undervalued asset prices, while extreme greed likely indicates frothy valuations and overvalued asset prices.
The crypto market is highly driven by emotions and sentiments, making the Fear and Greed Index by CoinMarketCap the perfect indicator to measure the “market temperature.” The index is updated every day, week, month and year and helps you figure out if the crypto market is too hot or too cold.
Why Investors Use the Fear and Greed Index
Investors use the Fear and Greed Index to avoid making emotional mistakes in the crypto market and identify buying and selling opportunities. As Warren Buffett famously said, “be fearful when others are greedy and greedy when others are fearful.”
The Fear and Greed Index gives you a simple number that gives you an estimation of how the market feels. It is not a perfect indicator in itself but can provide a useful measure of the market’s sentiment.
How CMC’s Fear and Greed Index Works
The Fear and Greed Index by CoinMarketCap analyzes five different factors to gauge the sentiment in the crypto market:
- Price momentum: It analyzes how well the top 10 crypto coins by market cap (not counting stablecoins) are doing. It integrates a holistic view of the market sentiment in relation to current prices.
- Volatility: Volatility predicts how much Bitcoin and Ethereum are moving up or down using Volmex Implied Volatility Indices, BVIV and EVIV. These indices tell you how much people expect BTC and ETH to move in 30 days. A higher volatility means more fear in the market, while a lower volatility means more greed in the market.
- Derivatives market: This factor looks at what traders think about Bitcoin using the put-call ratio. This ratio compares how many put options (bets that BTC will go down) to call options (bets that BTC will go up) there are on Bitcoin. A higher ratio of puts to calls means more fear in the market, meaning that traders think BTC will trade down soon.
- Market composition: The market composition looks at how much Bitcoin dominates the crypto market using the Stablecoin Supply Ratio (SSR). This ratio compares Bitcoin’s market cap to the total market cap of major stablecoins. A lower SSR means there are more stablecoins than BTC, while a higher SSR means there are more BTC than stablecoins. This metric shows how much people want to hold BTC or USD and shows how much the market is betting on BTC.
- CMC proprietary data: CMC’s proprietary data assesses how crypto users feel on social media. CoinMarketCap analyzes social trend keyword search data, such as phrases like “crypto moon.” User engagement and behavior helps us analyze which coins and projects people are interested in, and which themes are driving market sentiment.
Each factor has a 20% weight. The range of the index is from 0 to 100: 0 means extreme fear, 50 means neutral, and 100 means extreme greed.
Why You Should Use CMC’s Fear And Greed Index
The CMC Crypto Fear And Greed index makes use of a number of significant factors that have been carefully designed to give readers insightful information about the general mood of the cryptocurrency market, instead of current offerings that are Bitcoin-focused.
Here are some of the ways that CMC’s Fear and Greed Index could help you make better decisions in the crypto market:
- You can check the index on the CoinMarketCap website to get a sense of the market trends and cycles.
- You can compare the current value of the index with your own feelings and thoughts. Are you more scared or more greedy than the market? Are you following the herd or going against it?
- You can change your strategy accordingly and adapt a contrarian approach, where you sell coins when the market is greedy and buy when it is fearful.