Cryptocurrency’s Fear & Greed Index: How it Compares to Equities and What it Measures

By Nicolas Abington | Crescent City Capital Market Analyst Intern

If you’ve watched a CNN Business Market Review segment, then you’ve probably heard of their equities Fear & Greed Index. The Fear & Greed Index is an indicator of what type of emotion is driving the trades of the market. The Index uses seven different indicators to calculate when the market is trading based on “Fear” or “Greed”. The scaling system is out of 100 with zero showing extreme fear-based trading while 100 demonstrates extreme greed sentiment. It is based on the premise that excessive fear can result in stocks trading well below their intrinsic values, and that greed can result in stocks being bid up above what they should be worth.  For example, in a typical greed heavy environment, we would see unbelievable growth in the stock market, new highs in corporate valuations never thought possible, and some corporations with little financial sense getting bid up.

The CF&G attempts to track the same sort of sentiment in the crypto space by focusing on BTC and other major coins. The Indicator tracks a variety of different data sources, weighted according to their deemed importance to the market. The data includes;

  • Volatility (25 %)
  • Market Momentum/Volume (25%)
  • Social Media (15%)
  • Surveys (15%)
  • Dominance (10%)
  • Trends (10%)

At the time of writing, the calculation said the market was 65, indicating a greed sentiment fueling the market. In which case traders should be wary of any coins that have been pumped up to abnormal prices. This is obviously hard to tell in the crypto space as we can have price fluctuations of 80% and still have that be on the low side. In any case, this is just one more tool added to the trader’s toolbox.