Bitcoin in a State of Extreme Greed—Is It Time to Take a Contrarian Approach?
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Recent data reveals that Bitcoin market sentiment has surged into the extreme greed zone after the cryptocurrency reached a new high surpassing $111,000.
Recent Surge in Bitcoin Fear & Greed Index
The “Fear & Greed Index” serves as a gauge created to evaluate the sentiment of average traders within Bitcoin and the broader cryptocurrency markets. This metric utilizes a scale from 0 to 100 to indicate sentiment levels. Scores above 53 signify greed among investors, whereas scores below 47 reflect fear. Values falling between these thresholds denote a balanced outlook.
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In addition to these primary range indicators, there are also two ‘extreme’ segments known as extreme greed (above 75) and extreme fear (below 25). Currently, the market sentiment resides within the extreme greed side, based on the latest reading of the Fear & Greed Index.
Historically, extreme sentiments have been crucial for Bitcoin and other digital currencies, often marking significant peaks and troughs. The correlation has been inverse; thus, a persistent bullish atmosphere tends to indicate potential peaks, while a high level of despair tends to signal troughs.
Some traders take advantage of this phenomenon to strategically time their buying and selling activities. This approach is widely recognized as contrarian investing. A well-known saying captures this essence: “be fearful when others are greedy, and greedy when others are fearful.”
With Bitcoin sentiment currently returning to the extreme greed territory, it is likely that those adhering to this strategy might begin contemplating exits.
Currently, the Fear & Greed Index measures ‘only’ 78. In comparison, the highs from December reached around 87, while January peaked at 84. Earlier during this rally, the metric even climbed to a significant high of 94 in November.
Thus, the prevailing market may not yet be as overheated in sentiment, assuming sustained demand from investors. However, it remains to be seen how Bitcoin and other digital currencies will behave under this extreme greed condition.
In terms of demand, significant withdrawals from the Binance platform have recently been observed, as highlighted by analyst Maartunn in a social media post.
The parameter illustrated in the chart is the “Exchange Netflow,” which indicates the net volume of Bitcoin entering or exiting centralized exchange wallets, specifically Binance in this context.
The Binance Exchange Netflow has exhibited a marked negative value, signifying that investors have withdrawn a considerable amount of coins from the exchange. In particular, net outflows for this platform have reached 2,190 BTC, approximately valued at $237 million.
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This might suggest a strong inclination from large-scale investors to hold cryptocurrency in self-custodial wallets.
Current Bitcoin Price
As of the latest update, Bitcoin is trading around $108,400, showing an increase of over 4% in the past week.
Featured image from Dall-E, CryptoQuant.com, Alternative.me, chart from TradingView.com
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