So three months ago when the markets collapsed, I posted some commentary on the fear and greed index, and I looked back to see how prices had performed on similar times that the fear index more or less hit rock bottom. The title of my post was: " The Crypto Fear and Greed index is now at 12 (extreme fear). It has only dropped to this level five times in the past this cycle. So lets look at those dates, and look at the bitcoin price at that point and see whether each time presented a good buying opportunity. "
For those who don't know, the fear and greed index measures a range of factors to determine what state the market is in, and then each day measures the sentiment of the market from 0 to 100 - from extreme fear to extreme greed. Note that this covers not just bitcoin but also the major cryptos as as well (not that is really matters when the markets follow bitcoin anyway!)
https://alternative.me/crypto/fear-and-greed-index/
From that study, there were five previous times (since the start of 2018) at least where the "Fear" rating had been at a similar level - between 5 and 16. Generally it was a good time to buy on these events, twice it happened to be the cycle price bottom. In fact, if you only had ever bought on those five days, your average buy would have basically been the average price of the entire last cycle (about $6,500).
So on my last post the fear and greed marker was at "12" (extreme fear) with a price of $37,500 or so. I suggested this might potentially indicate a good buying time, and of course when the price fell further there were a lot of "this post aged badly" type comments.
But remember that it isn't like we were in "Fear" territory for a single day. In fact, the "extreme fear" indicator continued from 13 May to 27 July (we actually went to neutral, then back into fear again, and now we have just popped up to greedy - hence I used the words "nearly the first time" in my title).
In fact, that length of extreme fear is the longest stretch of fear in history (again, post 2017. I'm sure the Mt Gox collapse probably triggered a longer period !) So if you made it this far, and you still have your fingernails intact then well done. If you kept buying and held your resolve, well done even more!
And further, looking at that stretch of extreme fear we had FIVE more times when the FEAR rating went below 12! As low as 10 in fact (which is probably "spare underpants time" on the fear scale). So let's look at THOSE times and see what the prices looked like:
20 May - FEAR rating 11: BTC price = $38,000
24 May - FEAR rating 10: BTC price = $33,700
30 May - FEAR rating 10: BTC price = $34,400
22 June - Fear rating 10: BTC price = $31,700
21 July - Fear rating 10: BTC price = $31,400
The average fear rating through entire bear range was actually about 20 - just your regular state of panic and dismay. So these were definitely extreme moments of fear, at least as measured by this range.
So for your interest, had you bought on the five days of most extreme fear in that range, your average purchase price would be a very mild $33,840. Around 15% up from the bottom at $29k or so. That is also below roughly the median price over the last three months, which I would guess is around $35k.
So now what do we do that the market is greedy again? Well here is the good news. When I wrote my first post I did the same research on what happens when the market gets to "Extreme greed". And it turns out, that when looking at those days, and asking "was this a good day to sell?", I could not draw any strong conclusion either way. For example, there was extreme greed when we approached $10k, before we blasted through on the road to $65k. So it turns out that given bitcoin's prospensity to generally increase and have bull cycles, it makes sense that the market can remain greedy without a price collapse for too long.
So remember this the next time (hopefully a while away) that the market goes back to extreme fear and everybody is calling for a $20k bitcoin again!!!
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