Any market that is subject to trading has three main drivers. Whether stocks, bonds, precious metals, commodities, or cryptocurrencies — they’re all impacted by these three factors: fundamentals, technicals, and investor sentiment.

This last variable is full of emotions, fear, irrationality and fear. Few people are able to purchase, sell and hold in an environment that is purely based on logic. People tend to rely on their “gut instincts” or pure emotions. Anyone who doubts the role that emotions play in markets and decision-making need only recall this quote by famous economist John Maynard Keynes, “The markets can remain irrational longer than you can remain solvent.”

It’s because of this third emotionally-driven element of the market that the Crypto Fear and Greed Index (FGI) was created.

FGI is an interactive, free and easy-to use dashboard. It provides daily data on the crypto market sentiment. This information can be based on volatility, market volume or dominance as well as other weighted factors like social media. These variables are automatically retrieved from the web and inserted into the software’s proprietary algorithm. The FGI is updated every 24 hours.

Once the daily FGI score is calculated, it’s plotted on a 0-100 scale with ratings between 0-50 representing varying degrees of “fear” and 50-100 representing varying degrees of “greed.”

As of this writing, the FGI is ranked at 24 which is within the “extreme fear” range, as seen here.

FGI is one of the most innovative features. You can alter the time period to monitor the trendline and change its activation date. That’s useful to compare peaks and valleys with market events and conditions to better inform investing decisions going forward. Here’s the trendline for the past year.

If you’re a fan of Warren Buffett and want to invest the same way he does, now would be the perfect time to get into crypto when you consider his famous contrarian investment quote, “Be fearful when others are greedy and greedy when others are fearful.”

There’s wisdom in that perspective because people tend to get greedy when the market is rising, which results in FOMO (fear of missing out). In addition, many people sell their crypto to irrationally react to fluctuations or falls. According to the FGI website, these are two basic assumptions.

• An investor who is too afraid to face the unknown can signify extreme fear. This could indicate a potential buying opportunity.
• If investors get too greedy it is time for the market to correct.

That makes a lot of sense if you want to “buy low” and “sell high” — and isn’t that the general point of investing?

The FGI is a useful tool; however, it’s only a single data point, to help holders and traders alike evaluate the crypto markets with a bit less emotion and a bit more understanding during times of uncertainty. Regardless, all investment models should be considered with a grain of salt and should only be used as another data point to reference — not the sole reason for buying or selling any asset.

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