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The relatively young cryptocurrency sector continues to develop, acquiring its own instruments. The traditionally meager stock of criteria for evaluating the token market has now been replenished with its own "fear and greed" index.
Progressive crypto enthusiasts are now breaking spears in heated battles about the reasons for the 21% drop across the entire web of tokens, including Bitcoin, and to a slightly lesser extent Ether.
In particular, it became known that they are actively promoting the new fear and greed index via Twitter and other social networks to reinforce the view that the recent price drop is actually a great opportunity to support Bitcoin.
Recall that in traditional markets, fear and greed indicators are an indicator of investor sentiment based on factors such as volatility, momentum, and demand.
The crypto version developed by Alternative.me should help traders and investors determine if traders are overly optimistic (greed polarity) or bearish (fear polarity). Unlike a traditional index, the crypto VIX takes into account several other factors - typically informational, such as social media trends and Google searches.
The index ranges from 0 ("Extreme fear") to 100 ("Extreme greed"). It currently stands at 25. When Bitcoin hit an all-time high of nearly $69,000 last month, it was around 80.
Crypto VIX traders interpret the index, as well as the relatively lower bitcoin price, as being oversold and that prices are about to rebound and go to "the moon," said Troy Wiipongwii of the blockchain research lab at William & Mary University.
The index images posted on Twitter are referred to by some as "sexy" and replace the word "fear" in the image with the word "buy".
Many private crypto investors are in favor of the index.
"We have so little information about cryptocurrencies that this 'fear and greed' index becomes important for understanding market sentiment," says Ali Yilmaz, an investor. "I buy fear and sell greed."
Bitcoin enthusiasts have used a number of reasons in the past to explain why falling Bitcoin prices are perfectly normal, including comparing it to previous bull races or saying that volatility is part of the digital currency's DNA. The experts also shared several unexpected reasons that could trigger the recent drop in BTC and altcoins.
Indeed, the market has long been ripe for the introduction of its own tools that will help players assess the market situation quickly and efficiently.
However, in this index, an attempt to interpret any drop in digital coins as a reason for buying is alarming. Obviously, this is a clear attempt by the developers and fans of the index to stimulate demand in times of correction. Interestingly, with wider distribution, this index can indeed induce many to buy on the downturn, which means it can really influence the quotes in the future.
In addition, while experts say the index can technically be a marker of market sentiment, it has serious flaws.
"Ultimately, no indicator or index can fully predict market movements," Wiipongwii said. Indeed, as the market role of Bitcoin and other altcoins changes, it is clear that their relationship with macro factors will change. Index developers will have to constantly introduce new calculation algorithms to keep the index up to date.
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