Explained: What is ‘Extreme Fear’ that can make Bitcoin go below 50k?

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As a seasoned researcher with a decade of experience in the volatile world of cryptocurrencies, I must admit that the current state of Bitcoin is not unfamiliar to me. I’ve witnessed the highs and lows, the euphoria and despair, the greed and fear that characterize this digital gold rush.

Evidence points to Bitcoin falling significantly, potentially reaching $50,000 by the end of Q4 2024, according to analysts. They warn there’s no immediate solution in sight and we’re currently seeing a ‘Fear Extreme’ phase in the crypto market, which may have far-reaching consequences for the entire industry.

Based on the Crypto Fear & Greed Index readings, Bitcoin has dropped to a one-month low of ’22’, the lowest level since August this year. As investors and traders grapple with this development while expressing increasing worry about BTC, the overall crypto market is currently experiencing an “extreme fear” scenario.

For some time now, modifications have been made to Bitcoin. Currently, its market capitalization is $1.01 trillion (as of August 5, 2024), and it was trading at $50,112 – a significant decrease of 29.99% from its highest point. Over the past week, Bitcoin has decreased by 27.73%, while in the last day alone, it dropped by 16.85%. However, shortly after this decline, it started to recover slightly, attempting to stabilize at around $55,444 on August 6, 2024, marking a 4.25% increase. At the moment of writing, BTC is standing at $54,183.

In this article, we delve into the intricate relationship between investor emotions and the value of Bitcoin (BTC) within the crypto market. We’ll examine how “extreme fear” – a strong negative sentiment among investors – has impacted BTC in the past, suggesting that the current dip might persist for some time in the upcoming months. It’s important to note that this isn’t the first Bitcoin price drop we’ve witnessed in the crypto industry.

Understanding the Fear and Greed Index 

The Crypto Fear and Greed Index reflects the current feelings within the crypto market. Ranging from 0 (Extreme Fear) to 100 (Ultimate Greed), it’s calculated using extensive resources and BTC performance analysis. It takes into account various factors like price movements, volatility, trading volume, social media activity, market dominance, and Google search trends.

It’s important to note that when the “Extreme Fear” score, usually below 20, is reached by investors, it indicates they are excessively fearful about the market. Given the current Bitcoin price, this fear could indicate an excellent opportunity for purchasing as prices might rise further. This fear gauge assists investors in understanding market sentiment and making wiser decisions when buying or selling cryptocurrencies.

Could Bitcoin go below $50,000?

Currently, bitcoin’s price remains stable near $54,000, indicating it may soon enter a period of reduced volatility known as consolidation. This phase has tested investor patience since other investments like US stocks and gold are almost at or have surpassed their record highs. Interestingly, even in this interim period, bitcoin is still approximately 20% below its maximum historic value.

Currently at age 22, the Crypto Fear and Greed Index by Coinglass indicates a state of fear. This fearful mood has persisted in the market since August, with only occasional brief periods of intense unease, particularly on Bitcoin where there were two notable days of panic in the past year. One such instance occurred on August 5th when the unwinding of the yen carry trade triggered a significant sell-off.

Explained: What is ‘Extreme Fear’ that can make Bitcoin go below 50k?

In summary, during the past year, Bitcoin experienced 44 days of anxiety, 89 days of normal behavior, 215 days of increasing desire, and 15 days of intense craving or hoarding.

Over the last 14 years as a crypto investor, I’ve noticed that market emotions have played a significant role, with only four of those years being characterized by extreme fear. According to a table compiled by Coincodex, these sentiments have sparked both bearish and bullish phases in the cryptocurrency market over the past 13 years.

Explained: What is ‘Extreme Fear’ that can make Bitcoin go below 50k?

Several experts have shared their thoughts on the recent trend and feelings towards the value of Bitcoin. Over the weekend, Arthur Hayes, a former CEO of BitMEX, expressed confidence that the Bitcoin price could dip below $50,000 in the coming days. His advice to engage in a short trade underscores his near-term pessimistic outlook on the market.

In a similar vein, Rekt Capital noted that the 4-hour chart shows a refusal from the third zone and a significant resistance level. This implies that things aren’t finished in this timeframe yet.

The orange circle on the diagonal line shows a recent rejection of Bitcoin (BTC).— Rekt Capital (@rektcapital) September 6, 2024

Rekt Capital points out that the current dip aligns with typical price fluctuations following each past Bitcoin bull run during its September cyclical trends, where declines of less than 10% are commonly observed after a halving event.

Conclusion

Based on all available information and analysis about BTC, it appears that the price may approach the $50K mark. If current market trends continue, there’s a high probability that Bitcoin could drop below $50K in Q4. However, significant global events such as the upcoming U.S. presidential elections could potentially counteract this downward trend and delay or prevent an extreme fear phase.

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2024-09-07 09:24