- The Milk Road Crypto Fear and Greed Index is a single metascore that quantifies crypto investor market sentiment as it relates to Bitcoin (BTC).
- It ranges between 0 and 100. Lower levels of the index are associated with “Fear,” while higher levels are associated with “Greed.”
- Analysis shows that the index can be a useful tool for informing investment decisions. But “be greedy when others are fearful” is an overly simplistic interpretation of the index that could result in suboptimal results.
What is a Crypto Fear & Greed Index?
The price of Bitcoin (BTC) moves on news, data, and fundamentals. But it also moves on emotion and investor sentiment.
The Milk Road market fear index is a single metascore that aggregates movements in crypto fundamentals (e.g., volatility, momentum) and alternative data (e.g., social media, google trends, surveys) into one single number that ranges between 0 and 100. It can be thought of as a “pulse check” for how the average crypto investor is feeling on any given day.
This article unpacks how the Milk Road Crypto Fear and Greed Index is constructed, how its outputs can be understood, and how it can be used to inform investment decisions. The final section of the article provides an overview of other crypto fear and greed Indices and their methodologies.
Note: The information provided in this article does not constitute investment advice, financial advice, or tax advice. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.
How is The Milk Road Fear & Greed Constructed?
The Milk Road Fear and Greed Index is constructed by quantifying trends across 6 different fundamental and sentiment-based factors and applying different weights to them:
- Volatility (25%): Volatility is the measure of how much the price of a cryptocurrency moves during a period of time. Times of high uncertainty see high market volatility, while times of relative stability see lower volatility. The fear and greed index compares volatility over a 30-day and 90-day period and considers “unusual rises in volatility as a sign of a fearful market.”
- Market momentum/volume (25%): Crypto markets experience different buying and selling volumes each day. Some days are relatively quiet, while other days see a frenzy of trading activity (high volume). The crypto fear and greed index treats periods of high buying volume as indicative of greedy sentiment and periods of high selling volume as indicative of fear.
- Social media (15%): The fear and greed index uses social media crawlers to monitor hashtags and other activity for indications of trader sentiment. The most popular websites for this sort of analysis are Twitter and Reddit. The algorithms watch posts about crypto and monitor how many interactions they receive. An unusually high interaction rate indicates greedy sentiment.
- Surveys (15%): Websites that poll investors are used as input to the index. They gauge investor sentiment directly on a weekly basis.
- Dominance (10%): The “dominance” factor measures what percentage of the total crypto market capitalization is represented by Bitcoin. The thinking is that, since Bitcoin is traditionally seen as the safest cryptocurrency, a higher Bitcoin dominance indicates market fear, while a lower Bitcoin dominance indicates market greed.
- Trends (10%): Analyzing Google Trends data for various queries helps to inform the fear and greed index. An increased search volume for queries with a negative connotation, such as “bitcoin price manipulation,” indicates fear, while an increase in search volume for positive connotations indicates greed.
Understanding Our Crypto Fear & Greed Index
Low levels of the Milk Road Fear and Greed Index correspond with high levels of “Fear” in the market (and, by extension, bearish sentiment). Times of “Fear” coincide with traders trying to sell BTC quickly and generally being less sensitive to low prices. This can be driven by investors “panic selling” to limit expected losses and/or “forced selling” by way of collateral liquidations of leveraged positions.
High levels of the Milk Road Fear and Greed Index correspond with high levels of “Greed” (and, by extension, bullish sentiment). Times of “Greed” coincide with investors being optimistic about the future price of BTC. This could be due to a myriad of factors, including adoption milestones, positive regulatory developments, and fear of missing out (aka “FOMO”) buy pressure.
Milk Road Fear and Greed Index vs. Bitcoin Price
The Fear and Greed Index varies meaningfully on a daily basis. Given that its level is largely driven by factors that can be unrelated to price, that is not entirely surprising.
Take a look at the chart below. The blue line represents the daily levels of the Milk Road Fear and Greed Index. The yellow line represents the daily BTC price.
As can be seen in the chart above, The Milk Road Fear and Greed Index oscillates meaningfully irrespective of BTC price. On a daily basis, the index has moved an average of ~4 points per day since the index’s inception compared to Bitcoin’s average daily price fluctuation of 2.5% over the same time period.
Putting a Name to Index Levels
The numerical values of the index fall into five mutually exclusive rankings, which provide a framework for interpreting the index:
- Extreme Fear: 0 to 24
- Fear: 25 to 46
- Neutral: 47 to 54
- Greed: 55 to 75
- Extreme Greed: 76 to 100
On a historical basis, the market has been in a state of “Extreme Fear” or “Fear” far more often than it has been in a state of “Neutrality,” “Greed,” or “Extreme Greed.”
Take a look at the chart below.
It shows the percentage breakdown of rankings the Fear and Greed Index has registered since its inception.
Since February 2018, the market has been in a state of:
- “Extreme Fear” or “Fear” ~62% of the time (1,172 days out of 1,900).
- “Neutrality” ~9% of the time (187 days out of 1,900).
- “Greed” or “Extreme Greed” ~29% of the time (541 days out of 1,900).
For anyone who pays attention to crypto markets, that should not be surprising … at all.
“Turmoil” is a word that you’ll hear a lot around crypto circles. Just think back to how crazy the market was when Terra collapsed. Or when FTX was revealed to be insolvent. Or when Three Arrows Capital was revealed to be insolvent. Or every time the Federal Reserve decides to raise interest rates.
You get the point.
The list of events that can strike fear into Bitcoin investors seems to get longer every year. And once fear sets in, it can be hard to shake off.
At other times, “irrational exuberance” is a good description of market sentiment. Just think back to how bullish investors were when BTC broke through $20K for the first time in December 2020. Or when it hit a new all-time high of ~$69K in November 2021. Or when “DeFi Summer” spurned a new class of “crypto degens” in 2020. Or when the floor price of the CryptoPunks NFT collection reached ~114 ETH (~$6.2M) in October 2021.
Clearly, the market is not always in a state of turmoil.
Sentiment swings are commonplace in traditional financial markets. But when it comes to crypto markets, they are more pronounced and more frequent.
So, the Milk Road Fear and Greed index is a valuable tool for quantifying these swings in sentiment.
But how can it be used to make investment decisions?
Using The Fear and Greed Index to Inform Investment Decisions
The boilerplate interpretation of any fear and greed index goes something along the lines of “Be greedy when others are fearful. And be fearful when others are greedy”.
This means investors should consider adding to positions (in this case, BTC) when the index is in a state of “Extreme Fear” or “Fear.” And investors should refrain from adding to positions (and, by extension, consider selling BTC) when the index is in a state of “Greed” or “Extreme Greed.”
But that’s just the boilerplate interpretation.
The following analysis of historical index levels and forward BTC returns provides a more nuanced look into how the index is best interpreted.
The analysis spans both the short-term (i.e., one-day fluctuations) and the medium-term (i.e., one-week to one-month trends) to provide a holistic picture of how valuable (or invaluable) the index is in informing investment decisions.
The Short Term
Buying or selling BTC every time the Fear and Greed Index moves up or down a few points is not a suitable investment strategy for most investors. Nor is it a smart one (in our opinion).
To extract value from the index over short time horizons, identifying instances where the index has swung meaningfully over a one-day span is a good starting point. This analysis classifies directional swings of 25 points or more as “meaningful.” That is enough to swing the market from a state of “Fear” into a state of “Greed” in a single day.
Since inception, there have been 22 “meaningful” index swings:
- 11 one-day decreases of >25 points
- 11 one-day increases of >25 points
Take a look at the chart below. It shows 7D forward returns of BTC immediately following each of these 22 meaningful swings. In other words, had you bought BTC the day that Fear and Greed swung 25 points or more, the columns below show how your investment would have performed over the next seven days.
When the index has surged by 25 points or more in a single day, BTC’s average return over the next seven days has been 4.0%. When the index has collapsed by 25 points or more in a single day, BTC’s average return over the next seven days has been -2.2%.
Does this mean you should buy BTC every time the index increases 25 points?
Probably not. As demonstrated in the chart above, even when the index has increased meaningfully, BTC has dropped as much as 14% over the next week. And the sample size of these meaningful swings is relatively small at 22.
But based on this data, one can conclude that putting on a blindfold and buying BTC when the index collapses 25 points and selling BTC when the index surges 25 points would not have been the most profitable investment strategy historically.
But what about the medium term?
The Medium Term
For the sake of analyzing the medium term, this analysis identifies instances where the index has sat in one ranking for a sustained period of time. In this case, 7-day (7D), 14-day (14D), and 30-day (30D) consecutive rankings or “streaks” of one ranking.
Take a look at the chart below. It shows the number of “streaks” which have occurred across each of these time periods and rankings.
There have been far more streaks of “Extreme Fear” and “Fear” rankings compared to streaks of “Greed” or “Extreme Greed” rankings. This is not all that surprising, given that ~62% of the time, the index has been in a state of “Extreme Fear” or “Fear.”
But what does this mean from an investment perspective?
Take a look at the chart below. It shows Bitcoin’s average return for the 90 days immediately following a prolonged streak of 7D, 14D, and 30D for each ranking. In other words, it shows the return one would have generated had they purchased BTC immediately after realizing that a 7D, 14D, or 30D streak occurred.
The data is surprising, to say the least.
BTC has performed best following periods of “Extreme Greed” and “Greed.”
Following 7D ranking streaks, the average 90D forward return of BTC for “Extreme Greed” and “Greed” streaks are 149% and 126%, respectively, vs. 5% for “ Extreme Fear” streaks and 108% for “Fear” streaks.
- The sample set of these 7D streaks is significant. There have been seventy-four 7D streaks – the majority of which have been “Extreme Fear” or “Fear” streaks.
Following 14D streaks, the average 90D forward return of BTC for “Extreme Greed” streaks was 200% compared to just 9% for “Extreme Fear” streaks.
- The sample set of 14D streaks is much smaller than 7D streaks. There have only been twenty-seven instances of 14D streaks – the majority of which have been “Extreme Fear” or “Fear” streaks.
Following 30D streaks, the average 90D forward BTC return for “Extreme Greed” streaks was 255% compared to just 2% for “Extreme Fear” streaks.
- The sample set of 30D streaks is very small. The only instance of a 30D “Extreme Greed” streak was recorded in December 2020, when the price of BTC increased from $19,115 to $48,472 in the 90 days following the streak. That’s a pretty big return – even for an asset as volatile as BTC.
Putting It All Together
Clearly, “be greedy when others are fearful” is an overly simplistic way of interpreting the Fear and Greed Index that could result in suboptimal investment decisions.
Based on an analysis of index levels and BTC price, taking stock of medium-term trends in index rankings and positioning accordingly is likely the best path forward. Historically, BTC had performed better following periods when the index was in a sustained state of “Extreme Greed” or “Greed” rather than a state of “Fear” or “Extreme Fear,” – which stands in stark contrast to the boilerplate interpretation of the index. But there is no guarantee that will be the case going forward.
It should also be noted that the Fear and Greed Index is a relatively new tool. It has only been around since 2018. Given how long crypto bull and bear market cycles can be, that is a relatively short history to work off of.
Finally, the Fear and Greed Index should not be considered the “be all end all” of anyone’s investment strategy. It should be viewed in conjunction with other factors such as absolute BTC price levels, individual investment goals, and, of course, risk tolerance.
Other Bitcoin Fear and Greed Indexes
The original fear and greed index was developed for the traditional stock market by CNN Money. The same basic idea has been applied by various websites for the crypto markets.
|Index Name||Index Is Calculated||Sentiment Is Gathered From||BTC Price Chart Overlay||Standout Feature||Website Embed Functionality|
|Alternative.me Index||Every 12 hours||Volatility, Market Momentum/Volume, Social Media Surveys, Dominance, Trends||No||First of its kind fear and greed index for crypto||Yes|
|Look Into Bitcoin Index||Once a day||Volatility, Market Momentum/Volume, Social Media, Dominance, Trends||Yes||Interactive chart with fear and greed overlaid onto BTC price||Yes|
|BTCtools.io Index||Every 8 hours||Volume, Open Interest, Social Media, Search Trends||Yes||Color-coded graph with BTC price overlay||No|
|Alpha Data Analytics Index||Every hour||AI platform that reads news outlets and social media platforms||Yes||Unique sentiment indicators: awareness, momentum, overbought, and oversold||No|
|CoinStats Index||Every 12 hours||Volatility, Market Momentum/Volume, Social Media, Surveys, Dominance, Trends||Yes||A BTC dominance percentage indicator||No|
1. Alternative.me Index
The alternative.me index was the first fear and greed index for crypto. The index uses the price of Bitcoin to determine investor sentiment and displays a metascore in a tachometer-style gauge. The index also keeps track of investor sentiment over time and displays a graph of sentiment values for previous days. The alternative.me index updates twice every day.
Alternative.me index highlights:
- Was the first fear and greed index for crypto
- Uses a six-point data system to determine sentiment that includes volatility, market momentum/volume, social media, surveys, dominance, and trends
- Features an easy-to-install iOS widget
- Website shows a chart of the fear and greed index’s historical values over time
2. Look Into Bitcoin Index
The website lookintobitcoin.com features a fear and greed index that’s based on the price of Bitcoin. An innovative feature that this index has compared to others is an interactive overlay of the current and historical fear and greed values over a Bitcoin price chart. This chart updates every day and allows users to zoom in by clicking and dragging in order to view the historical trend on smaller timelines.
Look Into Bitcoin index highlights:
- Features a fear and greed index, as well as a historical price chart with fear and greed values overlaid
- The index derives its sentiment from several factors, including BTC volatility, momentum and volume, social media mentions, dominance, and Google Trends data
- Easy-embedding widget code that can be used to embed the index to your own website
3. BTCtools.io Index
The fear and greed index from BTCtools.io measures investor sentiment and maps fear and greed numbers on a historical trends graph. The graph is color-coded for easier readability and features one-month, three-month, one-year, and “all” timescales.
This index departs from others by using only four factors to determine its metascore.
- Volume: How the current market volume compares to historical volume
- Open interest: The number of open positions on crypto exchanges
- Social media sentiment: Buzz on Twitter and Reddit
- Search trends: Google and Bing search query trends
BTCtools.io index highlights:
- Updates every eight hours, or three times as often as an index that only updates once a day
- Color-coded fear and greed time chart
- A diverse set of sentiment factors that includes the “open interest” consideration which not many other fear and greed indices use
4. Alpha Data Analytics Index
While most indices feature only a “sentiment” gauge, Alpha Data Analytics’s fear and greed index features that as well as an “awareness” measure. The platform also combines several sentiment factors together to come up with a “momentum” measure. These unique tools can give traders an edge when using the Alpha Data Analytics index versus others.
- The “awareness” indicator is a measure of how much crypto is in the public eye at any given point in time. A high awareness factor means that multiple news outlets are running crypto stories and that some headline-worthy action is underway.
- The “momentum” indicator is calculated by “combining the strengths of the awareness and sentiment indicators” and can be interpreted as a measure of attention growth.
Alpha Data Analytics index highlights:
- Sentiment tracking using a proprietary AI that covers “350 largest news outlets and social platforms in 17 languages, reading 70 news related to the crypto topic every minute”
- Updates every hour
- Awareness factor that reflects crypto’s presence in the news media at different points in time
- Three additional indicators to help traders make decisions: momentum, overbought, and oversold
5. CoinStats Index
The CoinStats fear and greed index shows a single metascore, similar to other indices, but also features some additional indicators that are not found on other websites such as a BTC dominance indicator, a fear and greed index chart overlaid with the prices of several different crypto assets, and market cap/24h volume figures. The metascore is calculated using volatility, market momentum, social media sentiment, surveys, Bitcoin dominance, and Google Trends data.
CoinStats index highlights:
- Features a BTC Dominance percentage score which shows how much of the crypto market cap consists of just BTC
- Updated every 12 hours, which is more often than many other indices, which only update once a day
- CoinStats website allows you to overlay the price graphs of different assets over the fear and greed index values; these assets are BTC, ETH, USDT, and USDC
To Sum It Up
The fear and greed index measures the mood of the crypto market. Significant fear indicates turbulent markets and signals higher prices in the future, while significant greed signals coming price crashes. Want more ways to keep up with the crypto market? Check out our daily crypto newsletter (it will probably make you laugh, too.)
Frequently Asked Questions
Most fear and greed indices are calculated once or twice a day with some more advanced ones calculated every hour.
The highest score on the fear & greed index is 100, which represents extreme greed. (Zero is extreme fear.) However, the alternative.me fear & greed index — the most commonly used F&G measure — has never reached 100. The widely-watched index topped out at the mid-90s in June of 2019 and reached the mid-90s again several times again from late 2020 to early 2021.
The fear and greed index tracks Bitcoin market sentiment. Several sites, such as Look Into Bitcoin, offer an overlay of crypto fear and greed index relative to Bitcoin’s price.
While not a foolproof indicator — the F&G index as measured by Look Into Bitcoin was only at 75 when Bitcoin hit its all-time high — the index shows some interesting correlations to Bitcoin price. Several short-term price lows coincided with single-digit or low double-digit numbers in the fear & greed index, with Bitcoin later bouncing off its lows.
The crypto fear & greed index measures the market’s emotional sentiment toward Bitcoin’s price. But, by extension, the index can be useful in trading the broad crypto market because the broad market often tracks the general direction of Bitcoin and Ethereum.
The fear & greed index ranges from zero to 100.
- When the index is closer to zero, this indicates extreme fear in the market.
- When the index is closer to 100, this indicates extreme greed in the market.
Historically, the extremes of the fear & greed index have been a better indicator of market bottoms than of market tops. The highs on the index were followed by further price appreciation, in many cases, with the index cooling down before the market reached a short-term top.
However, crypto prices can move for a number of reasons, so it’s probably wiser not to rely on a single indicator to decide your next trade.
At a basic level, the fear & greed index is an indicator of fear (an index value closer to zero) or greed (an index value closer to 100). But there are several factors that go into the calculation to gauge market sentiment for Bitcoin — and the rest of the crypto market by extension.
The fear & greed index weighs all of the following data points:
- Market momentum/volume
- Social media
- Bitcoin dominance
- Google Trends
In effect, the F&G index takes the pulse of the market to see how we feel about Bitcoin’s price collectively. Extreme fear could mark a coming reversal – although that’s not always the case. A high fear & greed index followed by a tapering trend could indicate that the market has lost its exuberance and prices have peaked (or soon will). Again, exceptions to this pattern aren’t hard to find. Still, the F&G index can be one of many indicators traders might consider when planning their next moves.