Fear and Greed Index: Understanding the Emotion Thermometer of the crypto market

Core Logic

If the technical aspect is the “skeleton” of the market, then the emotional aspect is the “blood.” The grand waves of the crypto market ultimately come down to human nature in play—fear and greed take turns performing. This is why we need to pay attention to the Fear & Greed Index: it quantifies the concentration of people's sentiments in the entire market using a scale of 0-100.

How are the indicators composed?

Don't be fooled by the simplicity of this index; it goes through 6 processes:

1. Volatility accounts for 25% — Compared to the average of the past 30/90 days, sharp fluctuations usually indicate that the market is screaming.

2. Market Momentum + Trading Volume Accounts for 25% — The combination of price + trading volume over a 30-90 day period, with larger volume indicating a higher greed coefficient.

3. Social Heat Accounts for 15% — The volume of BTC topics, retweets, and reply engagement on X and Reddit, to put it simply, reflects the level of retail investor FOMO.

4. Market research accounts for 15% — Weekly surveys of 2000-3000 people, directly asking: What do you think about the market?

5. BTC Dominance at 10% — High BTC market capitalization ratio = Strong market risk-aversion sentiment = Rising fear

6. Google Search Trends Account for 10% — The surge in search volume for “how to buy Bitcoin” = signal of greed reaching its peak.

How to use?

Short-term trading perspective:

• 0-25 Extreme Fear = Bottom fishing moment, prices may be mistakenly killed
• 75-100 Extreme Greed = Risk Alert, those who should run should run, those who should reduce their positions should reduce.
• 40-60 Moderate Range = Market Rationality, Technical Signals are More Reliable

Practical Case: During previous BTC crashes, this index always falls below 20, often marking the starting point for the strongest rebounds. Conversely, when the index rises to 90+, it usually indicates a short-term peak.

There are also quite a few shortcomings.

1. Ineffective for Long Periods — This thing only focuses on short-term popularity and is not very helpful for large-scale trends across years.

2. Ignored Ethereum and other mainstream coins — The index is too centered on BTC, and when ETH and Solana surge, the signals from this index can become distorted.

3. The halving cycle is unclear — After each BTC halving, there tends to be an explosion in 3-6 months, even though the index may still be in the “fear” zone, it has already taken off.

4. Social data can be easily manipulated — Influencers can create narratives, flood the platform, and engage in “pump and dump” schemes, which can distort this metric.

Correct Usage

✅ What to do: Use it as an auxiliary tool, in conjunction with technical analysis (moving averages/support levels) and on-chain data (whale holdings/exchange outflows).

✅ What not to do: Placing orders just by looking at this index - that is equivalent to using popularity votes instead of logical investing.

Summary

The Fear and Greed Index is like the “heartbeat monitor” of the market—it can tell you whether there is euphoria or panic right now, but it cannot diagnose the underlying causes. Short-term swing trading can be referenced, but to buy the bottom or sell the top, one must analyze multiple dimensions including candlesticks, on-chain data, and fundamentals.

In one sentence: Stay calm when everyone is screaming, dare to act when everyone is surrendering, this is the best understanding of the fear and greed index.