For the past six months, the Fear and Greed Index has been above 50, and today it has reached a level of extreme greed again. Through the similarities with the 2019-2020 fractals, signs of an upcoming correction in the price of Bitcoin can be seen. Drops in the cryptocurrency market are still possible before the halving scheduled for April 2024.
The well-known Bitcoin Fear and Greed Index re-entered extreme greed territory above 75 today. Although such a state in the cryptocurrency market may last for weeks and months, similarities to the 2019-2020 fractal suggest the possibility of a deeper correction.
If Bitcoin sees a sharp decline before the halving, it could retest the $20,000 region. This would be consistent with the price action and events before the previous halving. There is also a possibility of a moderate correction (around 21%) after the halving, which turned out to be an ideal buying opportunity last time.
Crypto Market Returns to Extreme Greed
Today’s Fear and Greed Index readings show 76. This is a value in the dark green zone of extreme greed. Typically, such sentiment signals an impending correction, but it can last a relatively long time in the cryptocurrency market.
Interestingly, the average Fear and Greed Index signal for the previous month shows 48. This is a fairly neutral cryptocurrency market sentiment. This is a fairly neutral sentiment among market participants, which usually accompanies periods of consolidation and sideways trends.
Halving Effect and COVID-19
The culmination of this volatility was the 62% drop in the price of Bitcoin in March 2020. It was naturally triggered by the decline in the broader financial markets caused by COVID-19.
In 2020, this growth pushed the index into greed territory (above 55). On the other hand, we are reaching a slightly higher level today, as several days have already resulted in readings above 75 in 2024.
The 2020 crash ended with the Fear and Greed Index returning to extreme fear territory, around 10. This occurred 3 months before the previous Bitcoin halving. Under current conditions, 2 months before the halving and with the market quite heated, the probability of a deeper correction (blue arrow) remains high.
Extreme Greed and BTC Price
In the previous cycle, the Fear and Greed Index did not reach the extreme greed zone before halving. Unlike now, the index reflected values above 75 only after the halving when the BTC price reached the $12,000 area (green area). It turned out that the first test of this resistance (green line) ended in rejection, and Bitcoin briefly fell below $10,000 last time in September 2020.
If such a situation were to occur now as well, a roughly 21% correction in BTC price remains in play. At that point, Bitcoin price would test the $41,000 zone, slightly above the 0.382 Fibonacci retracement of the entire one-year bull run.
If, on the other hand, a crash comparable to the COVID-19 events had occurred even before the halving, BTC could have fallen by around 62%. Then, the BTC price would have reached $20,000 again, which seems extremely unlikely under current market conditions.
With the approval of Bitcoin ETFs by the SEC, the oldest cryptocurrency is becoming an increasingly recognized and trusted global asset. This, in turn, alleviates volatility in the broader cryptocurrency market, making deep corrections and absurdly high breakouts increasingly rare events.
By Audy Castaneda
