by Gunay Caymaz
Investing.com – Cryptocurrency markets are in good spirits as we head into 2023. While the rally is supported by a few technical indicators, there is a notable uptick in the Fear & Risk Appetite, which measures market perception.
Bitcoin price maintained its bullish outlook by testing the $21,400 range again, hitting the price area before the FTX breakout and recovering losses from this negative impact.
On the other hand, the Bitcoin Fear and Risk Appetite Index exited the fear zone this week. The index, which moved into neutral territory by rising to 52 over the weekend, fell slightly yesterday, but today it rose again above the 50 level and is now in neutral territory again. This step is being interpreted as a major step because it is the first time since April 2022.
Before entering April last year, the cryptocurrency averaged more than 20% bearish over a two-week period with some recovery momentum. However, the dominance of macroeconomic effects at the time and the emergence of problems in the cryptocurrency markets meant that the recovery process was limited and the decline continued.
Reflecting the current bullish trend, the index is optimistic about the market with a similar outlook to April. The index, which was at 53 in April, quickly declined as pessimism in the cryptocurrency market began to rise as negative news spread. While the sharp declines that occurred through June were supported by the policy of high interest rates and a collapse, the fact that cryptocurrency miners had to sell their assets pushed most cryptocurrencies, especially bitcoin, to the end of the year. Meanwhile, the fear and risk appetite index decreased to 6 levels, reflecting the extreme conditions of fear.
What is the indicator of fear and willingness to risk?
Known as the “Fear and Greed Index,” the index is known as a leading indicator that measures market sentiment. The index is calculated based on a weighted average of this data, based on 5 data points measuring the mood swings in the cryptocurrency market. Another detail about the index is that the data collected is based on Bitcoin, the dominant cryptocurrency in the market.
Thus, when calculating the indicator, fluctuations of 25% and 25% of market volume and momentum are taken into account. When calculating these two important data, which make up 50% of the indicator, the average values of the last month and the last 3 months are compared.
The index developers take into account 15% of social media interactions when calculating. By measuring the actions taken with the Bitcoin tick on a daily basis, the developers attempt to gauge the interest of market participants in the cryptocurrency on social media. Also, although they are not active at the moment, the developers include the searches they do from time to time in the index calculation at a rate of 15%.
Among other calculations, 10% of Bitcoin dominance is taken into account and 10% of Google Trends data is evaluated.
In addition to the current positive outlook, crypto analytics firms have recently indicated that bitcoin volumes on centralized exchanges are gradually declining. Bitcoin’s withdrawal from the exchanges is seen as a factor in easing the selling pressure, while it is seen as a positive sign that the rally may continue.
Latest Bitcoin status
Its upward momentum accelerated last week, gaining 21% for the week to close at the $21,000 mark.
While maintaining its positive outlook, it is facing resistance in the $21,400 range since the weekend. Although sales have been at $21,400 since Saturday, demand is expected to remain elevated in the mid-$20,600-$20,800 range.
Short-term price pressure has divided analysts in two. While some argue that the rally will continue and reach the $25,000 range in the first quarter of the year, some analysts believe that selling pressure in the current region may return and that Bitcoin could pull back to the $16,000 range.