Extreme Fear Refuses to Fade as Crypto Sentiment Hits a Historic Low

Crypt market mood has reached an uncharacteristic and uncomfortable stage. The Crypto Fear & Greed Index has been plummeting to 10 according to the data provided by Coin Bureau. More to the point, Extreme Fear is now in 19 straight days. It is the longest streak in that since July 2022, which many investors will remember vividly. This initially appears frightening. Paranoia prevails in the discussions, the price movement is oppressive, and confidence is weak. Nevertheless, history is known to respond to a more sophisticated narrative of long-term fear.

What the Fear & Greed Index Means

Crypto Fear & Greed Index is an index of volatility, momentum, volume, social media sentiment, and market surveys resulting in one sentiment score. The score below 25 denotes Extreme Fear. A reading of close to 10 puts the market deep in pessimism. This is now the longest period of streak of fear that has ever been observed in the past three and a half years. In July 2022, Extreme Fear went on to be longer than two months. This was at the time of forced liquidations, failed lenders and systemic stress. In comparison, the structure of the market today has a different appearance. Nevertheless, feeling has gone back to the same levels.

Structural failures were the cause of fear in 2022. Major firms collapsed. Liquidity vanished. Trust evaporated. Sentimentally, prices had their way in a vicious circle. This time, though, fear is more of a psychological than of a systemic appearance. Although the volatility is still high, core infrastructure is holding. Exchanges function. Networks operate normally. A cascading failure is not in progress. In spite of this, traders are on the defensive. Most participants are still scarred with previous cycles. Consequently, even medium-sized diminishments cause oversized affective reactions.

Background Fear Tends to Reach Inflection Point

In the past, the long periods of Extreme Fear have been usually associated with market fatigue. Sellers become depleted. Volatility compresses. The Accumulation insidiously commences. Historical information about the cycles will indicate that when fear lasts longer than a day, markets tend to encroach local or macro inflection areas. That in itself will not result in a prompt rally. It does however imply weakening downside momentum. Sentiment remained depressed in July 2022, way past the time when prices had begun to fall furiously. A slow recovery ensued later.

There is one significant difference. Bitcoin was trading in cycle lows in 2022. Bitcoin is much higher nowadays. This mode of increased price regime alters the manner of fear being translated into the price action. Rather than panicselling, there can be lengthy periods of consolidation in markets. It could not be an explosion of volatility. Consequently, sentiment and price can be out of line. Fear remains extreme. However, downside follow-through diminishes.

Implications of this to The Market Parties

Catastrophe is not necessary to perpetuate fear. It thrives on uncertainty. Macro ambiguity, regulatory headlines and rate expectations are some of the contributors to hesitation. Moreover, a lot of traders are now dependent on short-term indicators. It gives an atmosphere in which fear continues to linger but longer than anticipated. Extreme fear is usually risky to short-term traders. Liquidity thins. False moves become common. Emotional decisions rise. Sentiment extremes at some time in the past are however greater than price levels as far as long-term investors are concerned.Feeling can remain depressed even longer than most.

A Catalyst Waiting Market

Finally, the fear will not dissipate itself. Markets need a catalyst. This may be due to macro clarity, policy redirect or new demands flow. Sentiment might be heavy till then. The price action can be very frustrating. But historically these are the circumstances that overtly mold the next stage. Extreme Fear is not a good indication. It signals tension. And strain in markets seldom endures.

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