JOFF PARADISE EXAMINES
Fear vs. Greed
Bitcoin investor fear and greed are two emotions that drive the price of crypto, and often the deciding factor in how the market reacts. When greed is high the market will rally. When fear has control, the price will drop. These opposing forces are in constant battle with one another and can cause the market to be bullish or bearish – the same as in any trading environment. Too much greed in the market can cause huge consequences, result in a bubble, then followed by a strong shift to fear which causes a crash. There needs to be a balance of each for a healthy market, and crypto-enthusiasts prefer organic growth vs. the roller coaster ride most associate with the price of Bitcoin.
That said, there are profits to be made for those savvy enough to learn the ropes and trade the swings – but it takes time and effort, is very stressful, and definitely not for everyone.
You can find the Bitcoin Investor Fear and Greed Index online which analyzes the emotions from various sources and calculates a number. It is scaled from zero to one hundred. Zero being the highest fear level, and one hundred being the highest level of greed. Fifty is a perfect balance of each. This index takes volatility, volume, social media, polls and trends into account, then averages them to give us a good idea of how traders and investors feel about the market. You can use this index to help determine the best time to buy.
We all know we should never trade on emotions, and this index will help verify how you may feel about the Bitcoin market. You can use it as a guide to see if the feelings you have are trending.
Joff Paradise on
Bitcoin Investor FOMO
We saw first hand a few years ago how too much greed controlling the market can have grave consequences. Buyers that got greedy from hype and succumbed to FOMO steadily bought the rising price of Bitcoin until it was grossly over-priced and over-bought. There are a lot of rumors about what really caused the Bitcoin crashes in 2011 and 2018, but in the end fear and greed is what controlled it.
An extreme example of too much greed in a market is the “Dot-Com” craze of the late 1990’s. Because the internet was new and emerging technology like cryptocurrency, an explosion of online companies started up and everyone was quick to jump on anything internet related hoping to “get rich quick”. Investors quickly became greedy, with overprice stocks and securities causing a bubble that popped in early 2000. Greed was overtaken by heavy fear and a crash happened.
Most small online shopping companies didn’t make it as losses as low as 80% were recorded in some cases. Larger online shopping sites like Amazon and eBay took a big hit, but held on and eventually recovered. As fear levels started to go down, it allowed greed levels to rise and the Nasdaq recovered.
In conclusion, every investment market has the potential to be driven by fear and greed. To assume that assets traded in the market will perish as a result is not realistic. We still have the Internet despite the dot-com bubble, and we’ll still have Bitcoin despite the market moves of the crypto market. The question is: will you succumb to fear and/or greed, or educate yourself and take advantage of an Amazon-like opportunity?