Now that the dust has settled on the historic, record-breaking collapse the cryptocurrency market experienced earlier this month alongside the stock market, gold, and many other traditional assets, Bitcoin and altcoins have begun to recover.
But although cryptocurrency prices are recovering across the board, according to the crypto market Fear and Greed Index, sentiment is still in extreme fear. Does this mean it’s a time to be greedy while the market is fearful, or is the fear so extreme that taking a new position is dangerous?
Cryptocurrency Market Rebounds, But Sentiment Remains in the Gutter
Because cryptocurrencies are speculative assets, and much of their valuations are derived from hype and promise, investor sentiment is especially important.
And because it is such an important factor, a Fear and Greed Index was designed to track investor sentiment and help to make sense out of that sentiment reaching extremes of fear or greed.
Related Reading | How Fear and Greed in the Crypto Market Can Lead To Incredible Profit
The index is typically so accurate in representing the emotional state of the market, that it has been used successfully as a trading strategy.
Oftentimes, taking a contrarian position against the market, enormous profits can be made. As the famous Warren Buffett saying goes, it is wise to be fearful while others are greedy, and greedy when others are fearful.
And with the market in such extreme fear, that old adage would suggest that now is the time to buy Bitcoin with everything you’ve got, as fear as never been more extreme.
Not just within the crypto market, but fear is currently everywhere in the world. The coronavirus is a black swan event that’s caused such mass disruption and death, that the entire world is terrified of not only the pandemic itself, but the potential economic fallout that could last for decades as the world recovers.
Because fear is so extreme, both inside and outside of the cryptocurrency market, it’s wise to stay extra cautious when considering any investments or trades right now, and additional risk management strategies should be applied.
— Rekt Capital (@rektcapital) March 24, 2020
Coronavirus Causing Extreme Fear Means Crypto Investors Should Proceed With Caution
However, reaching extreme fear doesn’t always coincide with a price increase. The last time fear was this extreme, was in August 2019, when Bitcoin was trading above $10,000. In the month following, Bitcoin suffered a $2,000 drop.
That drop didn’t even bring sentiment back to the extreme fear it saw just a month prior, even despite one of the largest drops of the year taking place.
Related Reading | Is the Coronavirus The Black Swan Event That Crushes Cryptocurrency?
What’s undeniable, however, is that extreme fear can cause investors and markets to react irrationally. And because there is so much unpredictability due to the coronavirus, its best to play it safe and proceed with caution.