Optimism in 2023: is the crypto crash ending?

The crypto crash of 2022 seems to be behind us, so much so that optimism seems to have returned to the crypto markets in early 2023.

This is revealed in particular by the Crypto Fear & Greed Index, which is the index that measures the degree of fear or greed in the crypto markets.

Optimism and hope in 2023 following the crypto crash of 2022

In November 2021, the Crypto Fear & Greed Index had decidedly high values due to overenthusiasm from the ongoing speculative bubble.

However, as can be seen from its chart, this is a very volatile index, so much so that from 84 points on 9 November it went down to 16 points on 11 December.

It is worth mentioning that the value of this index fluctuates between 0 and 100, with 0 meaning maximum fear, and 100 meaning maximum greed. Thus the reference value is 50, meaning perfect neutrality between fear and greed.

After peaking at an all-time high on 10 November 2021 at over $69,000, Bitcoin’s price as early as 16 November 2021 began to fall, so much so that on 4 December it returned below $43,000. This descent was enough to cause the value of the Crypto Fear & Greed Index to plummet.

Therefore, it should come as no surprise that on 11 February 2022 it was back to neutral (50 points), or even that on 28 March it reached the greed zone, at 60. This is an index that measures precisely the sentiment of the moment, without taking past sentiment into account, and it is well known that sentiment in crypto markets can change a lot, and very quickly.

In April it fell below 40 points, and with the implosion of the Terra/Luna ecosystem and the failure of Celsius it even fell to 6 in June.

It is worth noting that it was this, and not November’s, low that was touched during the 2022 crypto crash, even though, for example, Bitcoin‘s annual low price of $15,500 was touched in November.

Thus this index does not measure price trends, but changes in sentiment generated by price changes. Indeed, in November, despite the FTX failure, the Crypto Fear & Greed Index never fell below 20 points.

In other words, the sentiment in the crypto markets in June 2022 was far worse than in November 2022, perhaps in part because the November price collapse was smaller, in percentage terms, than in May and June.

Except for two brief moments, in August and early November, after the Terra/Luna implosion, the Crypto Fear & Greed Index over the course of 2022 has never risen well above 30 points.

The return of optimism in 2023

The turning point came starting in mid-January, when Bitcoin’s price returned to $21,000.

It is worth noting that before the collapse due to the FTX bankruptcy, the price of Bitcoin was precisely at $21,000, a level not reached again until mid-January 2023.

In other words, as soon as the price of BTC recovered all the losses accumulated in November, the Crypto Fear & Greed Index returned to the neutral zone, after six months spent well below the 50-point mark.

So far, there would seem to be nothing strange or interesting, because these are actually frequent dynamics in crypto markets.

But at the end of January, in a way that was actually quite unexpected, the index also rose to 60 points, which is in the greed zone.

As a matter of fact, the rise of the BTC price did not stop in mid-January at $21,000, but continued until early February when it came close to $25,000, before momentarily falling back below $22,000.

It is quite evident that such a scenario reveals the spread of some optimism in the second half of January 2023 in the crypto markets, so much so that even the drop below $22,000 in the first half of February did not bring the index back to previous levels. The low point was the 48 points touched on 10 and 13 February, which is higher than the 40 points touched on 6 November 2022, with very similar Bitcoin prices.

In other words, what happened in two weeks in January 2023 was able to generate more excitement than what happened in a month and a half from late September to early November 2022. It was probably the speed with which Bitcoin’s price rose in January that generated this enthusiasm.

Is the crypto crash over?

In light of this data, it seems entirely possible to say that the crypto crash of 2022 is over, although this does not mean that another one cannot occur during 2023.

There was a downward path, which began as early as 16 November 2021 and ended on 10 November 2022, which was followed more or less by two months of lateralization. When this lateralization phase ended, there was a real rebound that ended the downward path of 2022.

Thus, 2023 began with a clear injection of optimism in the crypto markets, although this is by no means enough to prevent any new slumps.

However, for almost a week now, the Crypto Fear & Greed Index has been back near 60, i.e., in the greed zone, highlighting that there is no fear of an imminent new crash anytime soon in the crypto markets at the moment.

However, it is important to keep in mind that this index, being based on sentiment tracking, is not at all useful for making forecasts, because sentiment is so volatile that it can change completely from one moment to the next. In other words, it is by no means certain that the optimism that dominates the crypto markets right now is well placed.

That said, there are not a few analysts who speculate that Bitcoin’s price still has the strength to push even as high as $30,000, but much depends on the macro situation, which could turn negative and reverse this trend.