Crypto market “extreme fear” indicator reaches a multi-month low

Crypto market “extreme fear” indicator reaches a multi-month low


With major cryptocurrencies retesting key support levels, fear is gaining ground in the crypto market. December 3road, The price of Bitcoin fell to a low of $40,000, causing the number of cleared positions on the exchange platform to hit a record high.

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At the time of writing, almost all cryptocurrencies, but the top 10 Bitcoin by market capitalization, seem to be showing signs of recovery. After being rejected for USD 51,500 in the past 24 hours, the trading price of the benchmark cryptocurrency was only above USD 50,000.

BTC is trading sideways on the 4-hour chart. source: BTCUSD transaction view

Data from Arcane Research shows that the Fear and Greed Index has been fluctuating with the price of large cryptocurrencies calculated by market capitalization. In the last week, the indicator remained at the “fear” level until Friday’s crash further fell into “extreme fear”.

Although the indicator was able to rebound from the low of 16, it now has a score of 25, which is nearly 50 points lower than the November greed index of 73. The index is still close to its annual low and closer to the release-May 2021 level, when the increase in sales pressure caused the price of each major cryptocurrency to plummet.

From that moment on, these levels remained low until mid-August, when Bitcoin finally broke through $40,000 and hit a record high of $69,000. Arcane research noted the following points:

(…) Panic spread throughout the market after the weekend sell-off. We have not seen such a terrible market for nearly four months. With the market’s strong recovery, market sentiment rebounded from lows on Tuesday, but we are still in the “fear” zone (…).

According to some analysts, the “fear and greed” index of extreme fear levels has historically bottomed out locally before the crypto market. However, as the macroeconomic outlook becomes more complex, there may be obstacles to reaching new highs.

Is the crypto market facing the risk of macro factors?

QCP Capital believes that the sell-off was due to concerns about the new COVID-19 variant Omicron, inflation concerns, weakness in the Chinese stock market, and the possibility of the US Federal Reserve starting to scale back its asset purchase program.

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China’s crypto market is particularly worrying. This has translated into continuous negative financing rates across trading platforms. QCP Capital claims:

This shows the continued selling in China. In contrast, the financing interest rates of other exchanges quickly returned to normal (…). As China’s exchanges continue to see negative funds, we believe that the rise in spot prices may actually trigger a short squeeze.

The crypto market has already shown signs of this short-term squeeze, but due to the aforementioned macroeconomic factors, it may face more downside.

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