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Bitcoin’s (BTC) Struggles Continue with the Bitcoin Fear & Greed Index Sitting the Deep Red

By:
Bob Mason
Updated: Jan 10, 2022, 13:42 GMT+00:00

With the Bitcoin Fear & Greed Index tumbling into the deep red, much will now depend on the FED Chair and U.S inflation figures this week.

Bitcoin’s (BTC) Struggles Continue with the Bitcoin Fear & Greed Index Sitting the Deep Red

Following last week’s 11.5% slid to sub-$42,000 levels, it’s been a lackluster start to the week for Bitcoin (BTC).

Uncertainty over what lies ahead has weighed on trading volumes, with investors seemingly in pause mode. A number of key drivers in the week ahead have contributed to the heightened level of uncertainty. These include FED Chair Powell’s scheduled testimony on Capitol Hill this Tuesday and U.S inflation figures on Wednesday. Both could weigh heavily on Bitcoin (BTC) and the broader market should the markets price in a March rate hike.

Alongside the rising level of uncertainty has been a heightened level of Bitcoin fear.

The Bitcoin (BTC) Fear and Greed Indicator

According to Lookintobitcoin, the Bitcoin Fear & Greed Index sits 23/100 at the start of the week. When an Index level is red or near zero, this reflects extreme investor fear and is a bearish signal. A value in the green and close to 100 reflects market euphoria, with investors expecting further gains ahead.

The current level of 23/100 is in the red zone and reflects fear of further price falls to come. This current level is, therefore, a bearish signal and we wouldn’t recommend any buys considering key price drivers in the first half of this week.

Bitcoin Fear & Greed Index b

Looking back at key pivots in recent years, there are a number that present themselves and demonstrate the correlation of the Index to investor sentiment and Bitcoin (BTC) price action.

Bitcoin Fear & Greed Index

In December 2018, the Index was in the deep red at 11. From there, a bull run followed. Bitcoin (BTC) rallied to a 26th June 2019 high $13,764.

The Index then hit a 2020 low 8 on 14th March 2020. From here, an extended bull-run saw Bitcoin surge to a 14th April high $64,829.

For the Bitcoin Fear & Greed Index, the next key pivot level was at 19 on 10th July 2021. From here, Bitcoin (BTC) rallied to an ATH $68,958, struck on 10th November. Aligned with the Bitcoin (BTC) rally, the Index reached 84 on 9th November 2021 before the pullback.

From November, the Index tumbled to a current year low 10 on 8th January. From here, we have seen the Index partially recover to 20 levels. Having moved back through to 20 levels, previous trends suggest a Bitcoin (BTC) rally is on the horizon.

The marked deterioration in investor sentiment reportedly stemmed from the release of the FOMC meeting minutes late on 5th January. While the Index has risen to a current level of 23, this remains a bearish signal, however.

Looking at the Index values and Bitcoin (BTC) price movements, trend is key when considering the Index levels. A continued uptrend from 8th January’s 10 to 30 levels would be needed to form a buying opportunity.

A fall back to sub-20, however, will more than likely see Bitcoin (BTC) visit sub-$40,000 for the first time since September. This may prove to be another buying opportunity. We would want to see the Index move back through to 30 levels to signal a bullish trend.

Key Drivers for the Week Ahead

As previously highlighted, there are a number of key drivers in the week ahead:

  • On the monetary policy front, FED Chair Powell is due to give testimony on Tuesday, which will also be a test. Hawkish chatter will be considered Bitcoin (BTC) negative and the Fear & Greed Index will likely revisit sub-20.
  • On the U.S economic calendar, inflation figures for December will also likely have an impact on the crypto market this Wednesday. A further pickup in inflationary pressure would price in a March rate hike. We would expect the Fear & Greed Index to fall back to sub-20 and for Bitcoin to fall back to sub-$40,000.

With the uncertainties persisting through to Wednesday at the earliest, we would need to wait it out until FED Chair Powell’s testimony and Wednesday’s stats. From there, buying opportunities may present themselves. An Index move through to 30 levels would be a buy signal.

At the time of writing, Bitcoin (BTC) was down by 2.12% to $40,984.

BTCUSD 100122 Daily Chart

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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