Market Sentiment Shifts from Greed to Fear
In March, traders were in a state of “extreme greed.” However, market sentiments have shifted after a recent market downturn. The Crypto Fear and Greed Index dropped to levels last seen in January 2023, now indicating “fear” at 28 out of 100. In March, when Bitcoin peaked, the index was at “extreme greed” with 90 points.
Bitcoin Price Decline
A week ago, on July 1, the index stood at 53. Since then, Bitcoin’s price has fallen nearly 10% by the morning of July 8. From its price peak and the local maximum of the Fear and Greed Index in March, Bitcoin’s value has dropped by 23% as of July 8.
Understanding the Fear and Greed Index
The Fear and Greed Index closely follows market conditions. It evaluates market emotions on a scale from 1 to 100. “Extreme fear” ranges from 0 to 24, “fear” from 25 to 49, neutral at 50, “greed” from 51 to 74, and “extreme greed” from 75 to 100. This index considers volatility, trading volumes, Bitcoin’s dominance, Google search trends, and social media activity.
Developers note that the market becomes “greedy” during price increases, leading to FOMO (fear of missing out). Conversely, price drops often trigger FUD (fear, uncertainty, and doubt), causing market participants to sell their coins.
Purpose of the Index
The Fear and Greed Index aims to protect investors from excessive emotional reactions, encouraging them to “buy during general euphoria” and “sell during general panic.”
Reasons for Bitcoin’s Drop
Investor sentiment was impacted by potential Bitcoin sales from Mt. Gox creditors and confiscated coins sold by the German government, as reported by Bloomberg. Although Mt. Gox clients must wait two weeks to three months for payouts, Bitcoin prices dropped nearly 5% after payout news on July 5.
Government Bitcoin Holdings
Investors also panicked due to movements of confiscated BTC by the German and US governments, which hold over 250,000 BTC combined. Not only companies but also states are major Bitcoin holders. Unlike El Salvador, the US, China, the UK, and Germany have never officially purchased cryptocurrency, usually acquiring it through confiscations from criminals.
Bitcoin Price Predictions
Despite panic, investors maintain a positive outlook. Recent sentiment shifts favor cryptocurrencies, partly due to expected Ethereum spot funds and a bullish forecast from billionaire Michael Novogratz, founder and CEO of Galaxy Digital. Positive political developments in the US could also boost Bitcoin prices.
Novogratz believes the market is heading towards a rally and nearing a critical phase, with Washington finally agreeing on the necessity of cryptocurrency legislation, according to Bloomberg.
However, macroeconomic factors and hopes for US monetary policy easing could hinder Bitcoin. Bitget experts note that there are no signs of an imminent US interest rate cut, which is highly anticipated in both crypto and stock markets.
