Bitcoin sentiment breaks free from ‘extreme fear’ — returning to ‘neutral’ for the first time since May

• The Bitcoin Fear and Greed Index has finally returned to ‘neutral’ after being stuck in ‘fear’ territory since mid-May.
• The index, which reflects investor sentiment, hit its lowest valuation in a year on July 21, when it hovered at 10.
• The uptake in sentiment comes as Bitcoin’s value finally broke away from its support price of $30,000 and temporarily breached the $40,000 barrier.

Sentiments around Bitcoin and cryptocurrencies seem to be returning to normal. The Bitcoin Fear and Greed Index (BFGI) — which measures investor sentiment around digital currencies — has finally come back to ‘neutral’ after being caught between ‘fear’ and ‘extreme fear’ since mid-May.

As of July 30, the index stood at 53 — double the average of the previous week, which was around 23.

Readings from the past two weeks show extreme levels of fear. On July 21, the index showed 10, which is perhaps the lowest number that has been recorded since April last year.

This is in stark contrast to the sentiment during the last few months of 2020, where the index was roaring at above-90 highs that continued into February this year.

But in mid-May, when Bitcoin’s price halved, so did the value of sentiment on the index from 68 to 31. Both Bitcoin's price and the greed continued on their declining path till July 22.

What is ‘fear’ and what is ‘greed’?

It’s no secret that the cryptocurrency market runs on sentiment — which is just another word for emotions.

When the index shows ‘extreme fear,’ it signifies that investors are worried. For those who are looking to ‘buy the dip,’ this can be an opportunity. Alternatively, when the index shows ‘extreme greed’, it is an indicator that the market is due for a correction.

The values of index are determined by considering five factors — volatility, trade volumes, social media, surveys, and dominance.

Bitcoin isn’t out of the woods just yet

The coin saw its value surge to $40,000 this week on rumours that Amazon may allow its customers to pay using Bitcoin — a speculation that the company has denied.

Analysts at the Kraken crypto exchange believe that the world’s oldest cryptocurrency is currently facing a ‘do-or-die’ moment. "Given BTC's struggles at cracking $40,000 to $42,000 resistance in the past, the bulls will, however, need to turn $40,000 to support should they look to break out of what has been several months of range bound trading between $30,000 to $42,000," they said in a note.

Despite the bullish signals in the market, there are major risks to the outlook for bitcoin. A key one being the threat of tougher regulations.

Countries around the world are currently mulling over whether or not to ban cryptocurrencies, like China seems to be doing. The other options on the table are regulations and each region has its own take.

South Korea, for instance, wants to make it easier for the authorities to seize cryptocurrencies from digital wallets of crypto tax evaders. Meanwhile, in Europe, the Union is experimenting with the idea of launching its own central bank digital currency (CBDC) in addition to regulation.

The primary concern for governments seems to be around tax evasion, money laundering, and other illicit activities.

For a more in-depth discussion, come on over to Business Insider Cryptosphere — a forum where users can deep dive into all things crypto, engage in interesting discussions and stay ahead of the curve.

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