Crypto Crash Sends Fear & Greed Index to Lowest Level Since Bitcoin Hit $17K in Early 2023
The widely-followed sentiment metric, the Crypto Fear & Greed Index, hit extreme greed levels earlier in March near the local top of the crypto market but is now pushing its limits in the opposite direction. This index is a popular contrarian indicator for buying and selling, but analysts warn that there could be further downside for Bitcoin’s price.
Rachel Lin from SynFutures highlighted that sales of seized BTC by the German and U.S. governments, along with sell pressure from Mt. Gox user refunds, are creating a multibillion-dollar overhang. She mentioned that Bitcoin could drop to $50,000 during the historically weak months ahead, but a potential Fed interest rate cut in September might spark a rally, according to Markus Thielen from 10x Research.
Investor sentiment in the crypto market has plummeted to its most negative levels since the end of the 2022 crypto winter, as Bitcoin’s (BTC) plunge below $54,000 has dragged down digital asset markets. The Crypto Fear & Greed Index, developed by data source Alternative.me, gauges market enthusiasm for Bitcoin and other major cryptocurrencies, with a range from 0 (extreme fear) to 100 (extreme greed). On Friday, the index fell to 29, marking its deepest dive into the fear zone since early January 2023, when Bitcoin was trading around $17,000 following the 2022 bear market.
Notably, the index issued a contrarian sell signal this past March when it reached 90, near what has so far been the 2024 peak of the broader crypto market and Bitcoin’s all-time high of about $73,500. Since then, BTC and Ether (ETH) have dropped by 25%-30%, while major altcoins have plunged around 50%, and smaller tokens have suffered even greater losses.
Extreme fear levels might present buying opportunities, but the situation is more complex with several factors at play. Lin explained that the main catalysts for the downturn include the selling of seized Bitcoin by German and U.S. governments and “preemptive selling” as the estate of the defunct Japanese exchange Mt. Gox began refunding investors this month. She noted that this selling pressure is unlikely to abate in the short term. The German government still holds approximately $2.2 billion worth of BTC, the U.S. government has over $12 billion, and the Mt. Gox estate has more than $8 billion in assets, according to data from blockchain tracing platform Arkham Intelligence.
The direction of Bitcoin in the coming days will depend on the selling pressure from Mt. Gox users, Lin added. While the market expects most Mt. Gox users to dump their tokens, a bounce-back could occur if the selling is lower than anticipated. Conversely, if there is significant selling pressure, Bitcoin’s price might fall to around $50,000.
Markus Thielen, founder of 10x Research, has revised his price target for Bitcoin from $55,000 to $50,000. He suggested that this situation might force ETF holders and miners to liquidate more positions, particularly since August and September are traditionally challenging months for Bitcoin. However, Thielen also mentioned that if the Federal Reserve cuts interest rates in September, Bitcoin could see another rally attempt.
