Bitcoin: “Fear and Greed index” still ‘high’

Alternative publishes the level of Bitcoin’s “Fear and Greed index” which is updated daily. 

The index expresses a daily value between 0 and 100, where 0 is absolute fear, and 100 is obviously absolute greed. 

Even though it has never reached zero so far, there have been rare times when it has fallen below 10, most notably in June this year. 

The latest reading, reported yesterday on Wednesday, 9 November, is 22. 

This value does express extreme fear, but not at the highest levels like those in June. 

Analyzing the trend over the past few days, we can see that on Sunday, 6 November, the value, also referring to the previous day, was 40, which is non-extreme fear. 

The last time this value was neutral was in mid-August, and then since 18 August, it has always been negative. The lowest point since then has been 20, touched fourteen times between late August, September and October. So far in November, it has not yet dropped to those levels. 

The anomaly in the current values of Bitcoin’s “Fear and Greed index”

Although the most recent reading, that of today, refers to yesterday, it still seems anomalous. 

Indeed, the new one-year low for Bitcoin’s price was touched yesterday, even though it was touched again tonight. 

Yesterday’s low was at about $15,500, which is $2,000 less than the $17,500 touched in June when the index plummeted to 6 (extreme fear).

Why this anomaly? 

It is probably due to the fact that recent losses, expressed in negative percentage returns, are lower than in June. 

From 5 to 12 May, Bitcoin’s price fell 36%, then rebounded slightly. The low peak of Bitcoin’s fear and greed index was 8, touched on 17 May (i.e., calculated on data from 16 May). 

From 8 to 18 June, Bitcoin’s price fell 43%, so much so that the index touched its annual low at 6 on 18 June. 

In contrast, in recent days the loss has been “only” 27%, and this has probably generated less fear than in June. 

Fear and Greed index: a comparison with past Bitcoin values

In particular, four years ago, in November of the previous cycle, the price of Bitcoin lost more than 50% in the space of one month, from 12 November to 10 December 2018. 

The current collapse seems in some ways reminiscent of that of four years ago, except that it is significantly smaller for now, because the percentage loss is practically half. 

Moreover, during both previous cycles, the minimum price touched during the post-bubble bear market was 85% lower than the previous all-time high. Should such an eventuality also occur during the current cycle, the minimum price could be $11,500, a level much lower than the $15,500 touched yesterday. 

Therefore, the comparison with past cycles for now seems to indicate that the price of Bitcoin is holding up better this time than in the past. 

However, it is worth mentioning that in November 2018 the collapse was due to a massive sale of BTC in the market that caused its value to plummet, while this time, for now, such a massive sale has not occurred. In other words, what caused the collapse is the fear of the collapse of some of the most important infrastructures of the crypto markets, not the fear that Bitcoin might have problems per se. 

Therefore, unless the value of the fear and greed index falls further in the coming days, less fear than that which caused collapses greater than the one currently underway in the past seems to be warranted. 

The myth of the flippening

When the price of Bitcoin falls, people return to the so-called “flippening,” or Ethereum’s overtaking of Bitcoin. 

Throughout its history, Bitcoin (BTC) has always had a higher market capitalization than Ether (ETH), which is the native cryptocurrency of the Ethereum network. 

Right now BTC capitalizes at about $320 billion, while ETH $146 billion, which is less than half. 

That ratio, right now at about 2.2, has also been lower, but the low it touched was 1.4 in early January 2018. At that time, the bursting of the 2017 bubble on the price of BTC had already started almost a month before, while ETH was at an all-time high at the time. However, within a month it was back above 2. 

It has since peaked at above 10 in September 2019, because often in bear markets the price of ETH falls more than that of BTC. 

On 10 November last year, coinciding with the new all-time high of the ETH price, the value of this ratio had fallen to 2.2, or about the same value today. It has since fallen even lower, peaking at a low of 1.8 in December 2021. Not even in May 2021, when ETH reached its previous all-time high, had it fallen so low. 

However, there are those who believe that the flippening may occur during the current bear market. 

The point is that with the new rules of Ethereum transaction fees, and with the move to PoS, ETH is becoming a deflationary currency. This means that more units are being “burned” than are being created. As a result, the circulating supply decreases. 

According to former Bitcoin.com CEO, and current CEO of blockchain development house Laguna Labs, Stefan Rust, the current collapse of crypto markets may finally see ETH’s market capitalization overtake that of BTC. 

Rust said:

“Bitcoin seems to be declining faster than Ethereum’s ETH. The latter seems to be holding, and most likely the reason behind that is the fact that ETH is finally fully deflationary. It is burning more than it is a minting. At the same time, ETH transaction volume has grown over yesterday, and the transaction fees are pretty high right now.

Does this mean we are likely to see the first flippening? As we max out the bottom and turn around into a recovery, Ethereum – which is now deflationary – has huge transaction, volume, and developer engagement. And this is across a number of applications and different protocols. As such, yes: this current crypto shakeout could finally prompt the fabled flipping when the market cap of Ethereum takes over that of Bitcoin. It’s an exciting time.”

However, truth be told, the ratio of BTC’s market capitalization to that of ETH has risen during the recent crashes. 

The lowest peak of the latter period occurred in early September, when it returned to 1.8 but has since risen back up to 2.4 in mid-October. By the end of October, it had fallen back to 2, but with the recent collapse, it has risen again to 2.2. 

Therefore, during these collapses, ETH actually lost more than BTC, just as it did in the past. In other words, not even the fact that ETH has become deflationary has been able to reverse this historical trend. 

At this point, it seems difficult to imagine it reversing in the future as well, although it should not be forgotten that during bull runs ETH generally gains more than BTC. So while it actually seems difficult for the flippening to occur during a bear market, it is not aprioristically to be ruled out that it could occur during a possible new bull run.