Bitcoin Price: Fear Gauge Warns that BTC is Still in Trouble

The fear and greed index suggests that Bitcoin is not out of the woods yet. The closely watched index hints that the current bounce in BTC and other cryptocurrencies could be temporary. Bitcoin price surged to $18,300 for the first time since November. It remains about 10% above the lowest level this year.

What is the Fear and greed index?

The fear and greed index is a sentiment tool that looks at several gauges in its study of the state of the market. The first known index was created by CNN Money and is one of the most popular tools in the market.

According to CNN, the index measures the state of the market by considering several gauges like market momentum, stock price strength, stock price breadth, put and call options, market volatility, safe haven demand, and junk bond demand.

Alternative.me developed a similar tool that focuses on the crypto market. It looks at market volatility, market momentum, social media, dominance, and trends. While these measures are important, I believe that they are not as exhaustive as those provided by CNN Money.

The fear and greed index ranges from 0 to 100. 0 means that investors are extremely fearful while 100 means that they are extremely greedy. In theory, investors should buy when it is in the fear level and vice versa.

Investors are still fearful

The fear and greed index currently stands at 25, which is a sign that investors are still fearful. This means that long-term investors can start accumulating now. 

However, in most cases, buying when investors are fearful can be risky. Instead, I always recommend buying when it enters the greed level. In such a situation, it usually means that there is momentum going on.

Investors are fearful because of the rising fear of contagion in the crypto industry following the collapse of FTX. The US has arrested and charged Sam Bankman-Fried with numerous crimes, including money laundering and conspiracy. 

The next key catalyst for Bitcoin price will be the upcoming interest rate decision by the Federal Reserve scheduled for Wednesday. Economists expect that the bank will hike interest rates by 0.50% in its final meeting of the year. A hawkish statement will be bearish for Bitcoin prices.