Fear & Greed Index Retreats to Extreme Fear As Bitcoin Bottom Question Resurfaces

Bitcoin bulls lost steam as the broader market entered a correction phase at the end of last week, preventing a highly welcomed break above $25,000. The collapsing prices ultimately brought to a halt a multi-week ascent that started when BTC briefly slid below $17,750 on July 18. Citing derivatives metrics and a renewed loss of confidence, analysts last week cautioned that the latest retracement might push the crypto asset towards new yearly lows.

Fear & Greed Index has fallen back to 25

The Fear & Greed Index, as indicated by alternative.me, is now at an Extreme Fear of 25, depicting the evaporating neutral sentiment and increasing worry in the market. The last time that the index, as reflected by this metric, was lower than the current level was over a month ago when it reached 20 on July 18.

The heightened fear among investors has been attributed to disappointment resulting from expectations of subsequent interest rate hikes by the Federal Reserve. The same bore a risk-off mindset in an environment of rising inflation. This attitude has seriously injured investors’ enthusiasm for growth stocks, commodities, and crypto. During times of ambiguity (such as currently), investors are inclined to seek safety in the dollar and inflation-protected bonds.

Further, market indicators such as the absence of funding directed to the futures markets suggest a steeper global market correction could happen soon. Given that the total crypto market cap is presently around the crucial $1 trillion support, the current near-bearish market indicators are concerning. The likelihood of cryptocurrency reverting 20% to its annual lows near $800 billion is substantial, more so if the Federal Reserve effectively upholds its policy of tightening the economy to combat inflation.

Bitcoin (BTC) bottom calls

There is no doubt that Bitcoin will hold out against the current slump as it has recovered from even lower heights before this year. The BTC/USD daily chart indicates that bulls are regrouping and looking to establish an immediate support zone. On-chain analysis also suggests that Bitcoin has already found a bottom – a hypothesis that invalidates declines to new lows.

The Market-Value-To-Realized-Value (MVRV) Z-Score and realized price metric, in particular, point to a positive outlooking the Bitcoin market. The current MVRV Z score, a derivation from the MVRV that takes into account the market capital, gives the impression that a bottom has been tested going by past trends. Higher values of the score generally correspond to the market cycle reaching a climax, and those sub-zero coincide with the market reaching a bottom.

LookIntoBitcoin data shows that this indicator has been dipping for over 18 months and has since mid-June trended in the negative territory.

MVRV Z-score. Source: LookIntoBitcoin

This marks the fourth time the indicator has slipped below zero, the last two previous occasions being in March 2020 and Dec 2018.

The chart tracing Bitcoin’s realized price against its spot price shows the two plots have stayed within close range since mid-June. Last Friday (Aug 19), Bitcoin’s price fell lower than its realized price marking the third instance this year. The first instance on June 13 saw the market price hover below its realized value until July 18, followed by a very second brief spell only a week later.

Bitcoin realized price vs market price. Source: LookIntoBitcoin

While Bitcoin price has historically charted an uptrend after reclaiming the realized price, it remains to be seen if the asset will break out once it establishes support above the realized price – spotted at $21,703 at the time of writing.

Popular crypto analyst Michal Van de Poppe earlier today shared his short-term price outlook for the crypto market. He highlighted the quick consolidation across the market adding that the market looks likely to trend higher than revisit lower heights.

To learn more, visit our Investing in Bitcoin guide.