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The crypto market's sentiment continues to dive deeper as Bitcoin fails to recover after the most recent 9.5% drop caused by the increased exchange inflows.
Sentiment index shows "fear"
The Fear and Greed index has reached a value of 27, which also appeared on Dec. 21, when Bitcoin tested the $47,000 support zone after continuously losing its value since Nov. 10.
Sentiment indicators like Alternative.me’s index is quite often used by traders to determine microtrends on the market. Due to the unstable nature of the crypto market, traders tend to change their sentiment according to Bitcoin's price action and reflect their sentiment in various sources like search engine trends, volatile trading decisions and volume.
According to the sentiment indicator, all values below 30 should be considered oversold due to the absolute majority of the market dumping its holdings based on emotions rather than fundamental or technical analysis.
How is the indicator being counted?
According to its developers, the indicator uses multiple data sources to form a value. Half of it is counted based on volatility and market volume. As indicator creators assume, the sudden rise in volatility is a sign of a market that trades in fear, and volume decline should be viewed as increased anxiety among investors.
Two other sources act more like a social indicator, including search engine trends and social media outlets. With increasing interest in digital assets-related content, the index considers the sentiment more positive than negative.
In addition to volatility, search engine trends, and volumes, Bitcoin's dominance is also being used as a source of sentiment. With the increasing dominance of the market index, developers consider traders more fearful as they tend to own more BTC during the correction of the crypto market.