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Crypto Cold Knowledge—Do you understand the “Fear Index”?

In crypto news, we often see the phrase “Today’s Fear and Greed Index is XXX.” So how exactly is this Fear and Greed Index calculated—do you know?

🔍 What is the Fear Index?

In financial markets, the “Fear Index” is not a single concept. In traditional finance, the VIX index (Chicago Options Exchange Volatility Index) is a core indicator that measures the U.S. stock market’s expected volatility over the next 30 days. When the value rises, it means fear sentiment is intensifying, and it is often negatively correlated with the S&P 500 index. Meanwhile, the Fear and Greed Index in the cryptocurrency market is a sentiment thermometer specifically tailored for digital assets.

This data is measured on a scale from 0 to 100, where 0 represents the greatest fear and 100 represents extreme greed. Within the 0 to 100 range, the index is divided into four basic categories: 0 to 24 = Extreme Fear, 25 to 49 = Fear, 50 to 74 = Greed, 75 to 100 = Extreme Greed.

At the same time, the index extracts data from the following sources to calculate the score:

1. Volatility (25%): Compare Bitcoin’s current value with its average over the past 30 days and the past 90 days.

2. Market trends and exchange volume (25%): Bitcoin’s market trends and exchange volume over the past 30 days and the past 90 days.

3. Social media sentiment (15%): People’s views on Bitcoin on social media.

4. Market share (10%): Bitcoin’s share in the crypto market relative to all other cryptocurrencies (also known as dominance).

5. Search trends (10%): The trends in related Bitcoin search terms to determine whether people are expecting prices to rise or fall.

❓ Is the Fear Index “accurate”?

1. The index is often lagging

It’s not hard to see this from the index’s composition. Volatility accounts for 25% of the total, while price is often reflected after the fact. This is why the Fear Index is more of a lagging response to market sentiment under the current price, rather than using sentiment to predict the next direction of the market.

2. When the market reaches extreme levels, the price often moves in the opposite direction, not as an extension of the current trend

Looking back at Bitcoin’s development history, multiple bottom reversals are closely tied to the index’s “Extreme Fear” range. In June 2022, Bitcoin triggered a chain reaction due to events such as the LUNA coin crash and Three Arrows Capital’s collapse. The price plunged from above $40,000 to around $17,000. At that time, the crypto Fear and Greed Index fell to an extreme range below 10. In the midst of widespread panic and when investors were selling off, some contrarian investors began to build positions. Then, over the next six months, Bitcoin rebounded to above $25,000 in early 2023, and the dip-buying funds earned substantial gains. So when the Fear and Greed Index reaches extreme values, it often becomes a “contrarian indicator,” causing retail investors to fall into the “golden pit” or get stuck at the top.

📝 Summary: Use the index reasonably—be greedy when others are fearful

When using the Fear Index, investors should combine it with other analysis tools. For technical analysis, you can refer to Bitcoin’s moving average system, changes in trading volume, support levels, and resistance levels. For fundamental analysis, focus on the activity of the blockchain network, inflows and outflows of institutional funds, and the global macroeconomic environment. Only by integrating information from multiple dimensions can you judge market trends more accurately and avoid the mistake of “relying only on indicators.” What matters is not blindly following the index, but understanding the emotional logic behind it: stay calm when others are fearful, and stay rational when others are greedy.