Crypto: Be fearful when others are greedy. Be greedy when others are fearful.
Warren Buffett said, "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." Warren Buffet showed investors a vital insight from his mind in this famous quote. Through this quote, let's see how we can learn from it.
Fear & Greed
What are Fear and Greed? Fear and Greed are words to demonstrate the status of investors. Through Fear and Greed, we can see the situation of any market. Investors are typically greedy when the bull market and fear the bear market.
Until now, most market investors still follow this quote, and most have succeeded this way (including crypto investors). So, how can we follow this quote in Crypto?
Crypto Fear & Greed Index
In the Crypto market, investors often use some tools to check Crypto Fear & Greed Index. The most popular is Crypto Fear & Greed Index, developed by Alternative.me. Through this website, people can see how the market FOMO (Fear of missing out) and guess the behaviour of investors through indexing.
Data Sources
The Crypto Fear & Greed Index developed by Alternative.me including:
Volatility (25 %)
They're measuring the current volatility and max. Drawdowns of bitcoin and compare it with the corresponding average values of the last 30 days and 90 days. We argue that an unusual rise in volatility is a sign of a fearful market.
Market Momentum/Volume (25%)
Also, they're measuring the current volume and market momentum (again in comparison with the last 30/90-day average values) and putting those two values together. Generally, when we see high buying volumes in a positive market daily, we conclude that the market acts overly greedy / too bullish.
Social Media (15%)
While our Reddit sentiment analysis is still not in the live index (they're still experimenting with some market-related keywords in the text processing algorithm), our Twitter analysis is running. There, they gather and count posts on various hashtags for each coin (publicly, they show only those for Bitcoin) and check how fast and how many interactions they receive in certain time frames). An unusual high interaction rate results in a grown public interest in the coin and our eyes, corresponds to greedy market behaviour.
Surveys (15%) currently paused.
Together with strawpoll.com (disclaimer: they own this site, too), quite a large public polling platform, they're conducting weekly crypto polls and asking people how they see the market. Usually, they see 2,000–3,000 votes on each survey, so they get a picture of the sentiment of a group of crypto investors. They don't give those results too much attention, but it was quite useful in the beginning of our studies. You can see some recent results here.
Dominance (10%)
The dominance of a coin resembles the market cap share of the whole crypto market. Especially for Bitcoin, they think that a rise in Bitcoin dominance is caused by a fear of (and thus a reduction of) too speculative alt-coin investments, since Bitcoin is becoming more and more the safe haven of Crypto. On the other side, when Bitcoin dominance shrinks, people are getting more greedy by investing in more risky alt-coins, dreaming of their chance in next big bull run. Anyhow, analyzing the dominance for a coin other than Bitcoin, you could argue the other way round, since more interest in an alt-coin may conclude a bullish/greedy behaviour for that specific coin.
Trends (10%)
They pull Google Trends data for various Bitcoin related search queries and crunch those numbers, especially the change of search volumes as well as recommended other currently popular searches. For example, if you check Google Trends for "Bitcoin", you can't get much information from the search volume. But currently, you can see that there is currently a +1,550% rise of the query "bitcoin price manipulation "in the box of related search queries (as of 05/29/2018). This is clearly a sign of fear in the market, and they use that for our index.
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Conclusion
Crypto Fear & Greed Index is an excellent tool to help you have more decision results. However, The information provided on this website does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website's content as such
All the above are Crypto: Be fearful when others are greedy. Be greedy when others are fearful. If you have any questions for me, please comment below this post; I will write about them for you. And don't forget to follow my Medium. I wish you success on your investment journey.
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