Extreme greed is back for Bitcoin, is it time to sell?

Data shows that the sentiment of extreme greed has returned among bitcoin investors after the price of the cryptocurrency surpassed $50,000.

bitcoin Fear and Greed Index Now Pointing Towards 'Extreme Greed'

The “Fear and Greed Index” refers to an indicator that tells us about the general sentiment among bitcoin traders and the broader cryptocurrency sectors.

The metric represents this feeling using a numerical scale from zero to one hundred. According to Alternative, its creator, the index calculates this score using five factors: volatility, trading volume, social media sentiment, market cap dominance, and Google Trends.

When the Fear & Greed index has a value of 54 or higher, investors now share a feeling of greed. On the other hand, values of 46 or less imply the presence of fear among traders.

The region between these two ranges (values 47 to 53) corresponds to the territory of “neutral” sentiment. In addition to these three core feelings, “extreme fear” and “extreme greed” occur at the deepest ends of the fear and greed ranges.

Here's what the bitcoin Fear & Greed index looks like right now to see which of these regions the market is in:

Looks like the value of the metric is 79 at the moment | Source: crypto/fear-and-greed-index/" target="_blank" rel="nofollow">Alternative

As shown above, the bitcoin Fear & Greed Index surpassed the 75 threshold for extreme greed over the last day and reached a value of 79. The metric was at 70 yesterday, so it has seen a small jump in just the last 24 hours.

This rise in sentiment from greed to extreme greed came as the cryptocurrency surpassed the $50,000 barrier for the first time since December 2021.

Historically, extreme sentiments have been quite significant for the asset, as significant price lows and highs have occurred in these regions. This relationship between the two, however, has been inverse.

Extreme fear has occurred when bottoms have formed, while extreme greed has occurred when tops have formed. In the past, bitcoin generally tended to move against the expectations of the majority. This expectation is the strongest in these ranges, so it makes sense that a reversal is most likely here.

Followers of a trading philosophy called “contrarian investing” take advantage of this fact to time their buying and selling movements. “Be afraid when others are greedy and greedy when others are afraid” is a famous Warren Buffet quote that sums up the idea.

As the chart below shows, the last time the Fear & Greed Index reached extreme levels of greed was around the time of the ETF's spot approval.

The trend in the Fear & Greed Index over the past year | Source: crypto/fear-and-greed-index/" target="_blank" rel="nofollow">Alternative

As btc investors know, the coin peaked coinciding with the event as the market began selling the news. Since sentiment is now back into extreme greed with its latest rise, another similar reversal point may be near for its price.

Perhaps it is at a time like this that a contrarian investor would consider moving towards selling, going against the hype and euphoria floating around the market.

btc Price

bitcoin has enjoyed a rise of over 4% in the past day, pushing its price towards the $50,000 mark.

The price of the coin appears to have shot up over the past day | Source: BTCUSD on TradingView

Featured image from Shutterstock.com, Alternative.me, TradingView.com charts

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.