A crypto 'fear and greed' indicator shows investors haven't been this worried in a year as bitcoin and other major digital assets are crashing
- A key gauge that tracks investor sentiment in the crypto market has fallen considerably.
- That suggests investors are feeling exceedingly worried, which could suggest a market pullback.
- Investors are nervous panic-selling will continue after China's crypto crackdown, an analyst said.
The cryptocurrency market has been having a rough few days, causing a key investor sentiment metric to fall to lows not seen since April 2020.
The "crypto fear and greed index," published by Alternative.me, fell to 23 on Wednesday from a high of 75 last week, indicating a substantial fall to "Extreme Fear" from "Extreme Greed."
This level implies investors are feeling worried to the point that they are more likely to retreat from the crypto market. That could push prices even lower, creating a good buying opportunity for those looking to enter. Conversely, a feeling of extreme greed suggests assets may be overvalued, and a downward correction is due.
The last time the index flashed a level between 20-23 was in April 2020, when pandemic-driven volatility had just hit global markets.
"An extremely fearful market like this has historically presented solid buying opportunities during bull cycles," researchers at Norway-based Arcane said in a Tuesday report.
Another closely-tracked cryptocurrency ratio called the "Grayscale discount" is reflecting that investors are definitely nervous, according to the analysis firm.
That discount, which marks the difference between the price of bitcoin and the spot trading price, has widened to a record 25%. "If the discount becomes of sufficient size, this could post a short-term risk for bitcoin," Arcane wrote.
Furthermore, bitcoin's volatility in the short-term exhibits notable fluctuations over the past month. The current level of volatility over the past 30 days shows that its price has moved 4.5% each day, according to the Bitcoin Volatility Index.
Bitcoin plunged as much as 26% to below $33,000 on Wednesday after China said virtual currencies cannot and should not be used in the market as they don't have real value. Dogecoin fell 43% to 28 cents and Ethereum's ether fell 39% to $2,094.
The broad weakness across cryptocurrencies came from the next step in Beijing's regulatory crackdown, according to Edward Moya, a senior market analyst at OANDA. "China's restrictions on cryptocurrencies are expanding and that has many investors nervous that panic-selling will continue," he said.
The crash in the cryptocurrency market has a lot of the new institutional money see all their profits go up in smoke, he said, adding a panic-selling event will prompt investors to be selective and buy the coins they think will survive more intense regulation.