Crypto Fear Index Shows 'Extreme Fear' Grips Most Buyers. Should You Invest Now?

The Crypto Fear and Greed Index has not been this low in nearly a month as it enters the zone of 'Extreme Fear.'

The main price drivers of virtually every investor-grade asset -- including cryptocurrencies -- are the underlying macroeconomic fundamentals; technical charts tracking trading activity; and general market sentiment of buyers and sellers.

When it comes to market sentiment, this concept suggests that investing can be an emotionally-charged activity. That's largely true for the typical investor because very few of us have the patience, discipline, and rational calmness to sell, buy, or hold in a market based only on logic.

What is the Crypto Fear and Greed Index?

One of the ways to gauge market sentiment within the cryptocurrency space is with the Crypto Fear and Greed Index (FGI). The FGI provides a snapshot of the general market "emotions" within the crypto space. It's refreshed daily using a collection of different weighted factors that include volatility, market volume, social media, dominance, and trends that are scraped from a variety of sources across the internet.

FGI seeks to remove emotional overreactions and enable crypto investors to make a more rational decision within a market segment that's more volatile and irrational than other markets. After the FGI score is compiled each day, it's then plotted on a 0-100 graph with ratings between 0-50 representing varying degrees of "fear" and 50-100 representing varying degrees of "greed."

At press time, the FGI for Apr. 12, 2022 has dropped to 20, which is within the 'Extreme Fear' range and marks the lowest level of investor sentiment for cryptocurrencies in nearly a month.

Is now an opportunity to buy in on crypto?

Contrarian investors tend to do the opposite of what "herd mentality" investors do as an intentional strategy. Typically, the average investor gets greedy when the market is rising, resulting in FOMO (fear of missing out) -- which is usually the wrong time to buy in.

Similarly, average individual investors tend to hold assets for too long thinking the price will rebound to the highs they saw when they bought. That's completely opposite to what smart contrarian investors do. The FGI helps remove emotional overreactions to help investors maximize the investing axiom: "buy low, sell high." The FGI website states:

• Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
• When investors are getting too greedy, that means the market is due for a correction.

One nifty feature of the FGI website is that it provides historical tracking of the index back to its inception in Feb. 2018, enabling investors to map correlations between the line's movement and meaningful technical/fundamental occurrences that happened within crypto.

The FGI should be part of your research arsenal

When doing your own research, it's important to keep in mind that no single investment model is accurate 100% of the time. While the FGI is a useful tool, it's only a single data point. However, it can be a resource to help you more clearly navigate the crypto markets rationally when asset prices are either pumping to new highs or dumping to new lows.