The broader crypto economy seems to be in shambles for more than just one reason.
Volatility isn't anything new for crypto, but this time around feels different. The March 2020 collapse resembled more of a knee-jerk reaction to the unprecedented measures countries were taking to combat COVID-19.
Prices alone prove that there is a lot of work to be done before the crypto economy can regain its previous levels. And this likely won't come until Bitcoin (BTC 0.26%) rebounds from its current lull.
Image source: Getty Images.
Measuring a bear market
One way to measure sentiment around Bitcoin is the Fear and Greed Index, a compilation of differently weighted statistics that gives us a gauge on whether there is too much fear or too much greed in the market. The index ranges from 0 to 100. Typically, higher levels are classified as "greed" and are associated with a bull market. A lower number signals "fear" and usually correspond with a bear market.
This index has proved to be fairly efficient at capturing future trends for Bitcoin. Especially when using a moving average instead of daily values, which fluctuate rapidly. A moving average of the Fear and Greed Index provides more context to the current market and is less influenced by day-to-day swings.
Fear means opportunities
On May 24, the 90-day moving average of the Bitcoin Fear and Greed Index hit a new low of just 27. These levels have rarely been seen in Bitcoin's history. The only other time the index reached below 25 was in 2018 during the last extended crypto winter.
While no one is looking forward to another crypto winter, these metrics show that fear in the market is as bad as it's ever been. This doesn't mean Bitcoin will bounce off of these levels immediately. In fact it is more than likely that this will be a drawn-out process.
And that is fantastic for investors and believers in Bitcoin who want to get exposure to lower prices. The current price of Bitcoin has hovered around $30,000 for nearly three weeks. For Bitcoin to be at this price and at these levels of fear is telling of just how far Bitcoin has come.
It can be difficult not to get caught up in how bearish the market is currently. The current pullback is substantial but should not be misinterpreted. Rather than judging Bitcoin on a short term scale, investors should judge Bitcoin from a long term perspective.
Take the time to zoom out and look at the bigger picture. For more than a decade, Bitcoin has continually proven that it is a superior cryptocurrency and will persevere. While the new lows in the Fear and Greed Index are informative, they do not tell the whole story.
Even though he is known for not being a fan of Bitcoin, the great investor Warren Buffett once said, "Be fearful when others are greedy, and greedy when others are fearful."
