In the cryptocurrency market, investor sentiment fluctuations have a direct and significant impact on prices. The Fear and Greed Index is a key market sentiment indicator that assesses current market sentiment by analyzing various factors such as market volatility, trading volume, social media sentiment, survey results, and market momentum. The index ranges from 0 to 100, with higher scores indicating more greed in the market, while lower scores indicate more fear. This article will explore several typical crashes in the Bitcoin market under high index conditions (i.e., extreme greed in the market).

May 2021: Index 84 - 'Extreme Greed'

In May 2021, Bitcoin's price reached a peak of nearly $65,000, while the Fear and Greed Index also hit 84, indicating extreme greed in the market. Following this period, the market experienced a sharp correction, with prices dropping over 30% in just a few days. Many investors bought in at high levels, influenced by market sentiment, ignoring potential risk factors such as regulatory pressure and market overheating.

November 2021: Index 89 - 'Extreme Greed'

During this period, Bitcoin once again approached its historical high, with the Fear and Greed Index rising to 89, reaching an all-time high. Subsequently, the market entered a correction phase, with prices dropping from nearly $70,000 to around $40,000 within weeks. This crash was termed 'Black Thursday,' as the market shifted from greed to fear in just a few hours, resulting in substantial losses for many traders.

April 2022: Index 75 - 'Greed'

Although the index did not reach 'Extreme Greed' levels, Bitcoin's price in April 2022 was still considered excessively high, with market sentiment leaning towards optimism. Subsequently, Bitcoin’s price began to drop from nearly $48,000, a trend that continued for months, falling to $17,618. These declines were attributed to macroeconomic factors, rising interest rates, and an overall adjustment in the cryptocurrency market.

July 2024: Index 72 - 'Greed'

A recent example is in July 2024, after Bitcoin reached new highs, the Fear and Greed Index showed 72, with market sentiment filled with greed. This was followed by a market correction, with prices retreating about 20% from the peak within weeks. This correction was seen as a natural correction to the market's excessive optimism, especially in the context of increasing global economic uncertainty.

November 2024: Index 78 - 'Greed'

Today's Fear and Greed Index is once again close to 80, currently at 78. According to @0xUnicorn's comments on the X platform, historically when the index exceeds 80 points, Bitcoin typically experiences at least a 20% price drop within two weeks.

Control emotions to provide risk alerts

Current risk alert:

Index level: The Fear and Greed Index is currently at 78, close to historical alert lines.

Historical reference: Historical data shows that when the index exceeds 80, it often indicates extreme greed in the market, where investors should be wary of potential market corrections.

Potential risk: Based on historical trends, the market may face a significant downside risk in the short term under current sentiment.

Advice for investors

Stay vigilant: High indices often indicate an overheated market, and investors should be cautious to avoid chasing highs during extreme greed.

Risk management: Considering the potential downside risks in the market, develop or adjust your investment strategy to ensure appropriate stop-loss measures.

Don't panic: While historical data provides a reference, remember that the past does not necessarily predict the future, and there's always uncertainty in the market. Stay calm and focus on long-term trends rather than short-term fluctuations.

Diversification: In extreme market sentiment, diversifying your portfolio can help mitigate the risks of a single asset.

Follow me for more insights.