Bitcoin flies above $47,300, but beware of extreme greed

bitcoin is finally showing sustained bullish momentum as it has now surpassed $47,300, but too positive sentiment may be a hindrance to this rally.

bitcoin Fear and Greed Index Suggests Market Approaching Extreme Greed

The “Fear and Greed Index” is an indicator that tells us about the general sentiment among investors in bitcoin and the cryptocurrency sector in general. According crypto/fear-and-greed-index/” target=”_blank” rel=”nofollow”>AlternativeAccording to its creator, the index takes into account five factors to calculate this sentiment.

These are volatility, market volume, social media sentiment, market cap dominance, and Google Trends. The index generates sentiment as a number that ranges between zero and one hundred.

All stocks 46 years old and younger imply that investors are fearful, while those 54 years old and older suggest the presence of greed in the market. The region between 47 and 53 corresponds to the neutral sentiment region.

Now, here is what the Fear and Greed Index for bitcoin looks like right now to see which of these regions the market is currently in:

The current value of the sentiment according to this index | Source: crypto/fear-and-greed-index/" target="_blank" rel="nofollow">Alternative

As can be seen above, the bitcoin Fear & Greed Index is valued at 72 right now, implying that most investors in the space share a greedy mindset.

In addition to the three core feelings mentioned above, there are also two extremes: extreme fear and extreme greed. The first of them occurs at values of 25 years or less, while the second occurs at 75 years or more.

Historically, these two sentiments, in particular, have been of great importance to the trajectory of cryptocurrency. Generally, at any point in time, the asset is more likely to move against the majority's expectations, and in these extreme regions, this expectation becomes stronger.

As such, these sentiments have been the places where major reversals in the asset are most likely to occur. Followers of a trading philosophy called “contrarian investing” take advantage of this fact to time their buying and selling movements. Warren Buffet's famous quote sums up the idea: “Be fearful when others are greedy and greedy when others are fearful.”

With a value of 72, the bitcoin market is pretty close to entering the region of extreme greed right now. Just yesterday, the metric had a value of 66, which means there has been some jump in the last 24 hours.

Looks like the value of the metric has shot up over the past day | Source: crypto/fear-and-greed-index/" target="_blank" rel="nofollow">Alternative

This rise in the index is naturally due to the bullish momentum the asset has enjoyed over the past day. However, any further improvement in sentiment could be alarming, as the metric would then enter extreme greed territory.

The last time the bitcoin Fear & Greed Index reached extreme greed values was around the time of the approval of spot exchange-traded funds (ETFs). It just so happened that the coin peaked, coinciding with this overly bullish mindset.

Therefore, if this precedent is taken into account, any visit to the territory in the coming days may serve as a warning that a top for the cryptocurrency is approaching.

btc Price

bitcoin has enjoyed a rise of over 6% over the past 24 hours as its price surpassed the $47,300 level.

The price of the coin appears to have been going up over the last couple of days | Source: BTCUSD on TradingView

Featured image by Michael Förtsch on Unsplash.com, TradingView.com charts, Alternative.me

Disclaimer: The article is provided for educational purposes only. It does not represent NewsBTC's views on whether to buy, sell or hold investments, and investing naturally carries risks. It is recommended that you conduct your own research before making any investment decisions. Use the information provided on this website at your own risk.