Crypto Market Goes Into “Extreme Fear”, Now What?
With the recent decline in the crypto market, investors have become more fearful of the market. Recorded on the Index of fear and greed, it shows that this remains an incredibly scary time for users of cryptocurrencies. In times like these, when digital asset prices continue to fall, investors are expected to be wary. This time, however, the market had quickly entered the territory of “Extreme Fear” with no signs of emerging any time soon.
Afraid to invest?
At the beginning of the month, top cryptocurrencies such as Bitcoin and Ethereum had embarked on a recovery trend that would eventually overwhelm the rest of the market. As prices rose, so did positive sentiment among investors who had re-entered the market. Not long after, however, the market had started one of the signature correction trends associated with the bull rally and now investors have chosen to pull back rather than risk further downside.
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The Fear & Greed Index shows that the market is downward sliding scale since last week’s release, which had ended with neutral sentiment from both sides of the market. By Monday, however, this had quickly turned into fear, with bitcoin finally falling to the $43K area. Tuesday itself proved to be worse as the market had indeed fallen into extreme fear, leading to a low of 20.
With Wednesday starting better than Tuesday with a score of 25, it’s still not good news for the short term. When investors fear the market, they tend not to put money into it for fear of losing more. This also causes people to take profits from the market for fear of their coins depreciating further. With such low momentum, prices could suffer more rather than spark a new recovery.
Is fear good for crypto?
When it comes to how the market feels towards cryptocurrencies, it can often be a matter of personal perspective. There are those who believe that the best choice is to stay out of the market when it is fearful and to invest only when prices start to recover. However, there are those who believe the opposite.
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Those who subscribe to the “buy the blood” mindset often welcome downward trends like this one as it gives them the opportunity to buy “discount” coins. This mainly comes down to the investor’s risk appetite.
Nevertheless, it still makes sense that some of the biggest rallies have come after the market has been consolidated by a drop in prices. This was the case in late February/early March when the market became greedy very quickly in extreme fear as prices started to recover.
Total Market Cap Drops to $1.8 Trillion | Source: Crypto Total Market Capitalization on TradingView.com
Featured image from Psychology Today, chart from TradingView.com