Crypto Crash Pushes Fear & Greed Index to Lowest Since Bitcoin Traded at $17K in Early 2023

The widely-followed sentiment metric hit extreme greed levels earlier in March near the local top of the crypto market, but now is pushing its limits in the opposite direction.

Crypto investor sentiment hit its lowest levels since early January as bitcoin's (BTC) drop below $54,000 pulled down digital asset markets.

The widely-followed Crypto Fear & Greed Index, created by data source Alternative.me, shows market enthusiasm towards bitcoin and other large cryptocurrencies, with 0 being extreme fear and 100 translating to extreme greed.

The gauge dropped to 29 on Friday, its deepest dive into the fear zone since early January 2023 when bitcoin was trading around $17,000 after 2022's crushing bear market.

The metric notably sent out a contrarian sell signal this past March when it reached the 90 level at near what turned out to be (so far) the 2024 top of the broader crypto market and bitcoin's all-time high of about $73,500. Since then, BTC and ether (ETH) are 25%-30% lower, while altcoin majors plunged around 50% and smaller tokens lost even more.

Is the bottom in? Extreme levels of fear may present buying opportunities, but the reality is more nuanced with several factors to be considered.

The key catalysts behind the downturn was the unloading of seized bitcoin by German and U.S. governments, along with "preemptively sell[ing]" as the estate of defunct Japanese exchange Mt. Gox started to refund investors this month, wrote Rachel Lin, CEO and co-founder of derivatives trading venue SynFutures, in a market update.

The selling pressure is unlikely to abate in the short-term, she said. The German government still holds some $2.2 billion worth of BTC, the U.S. government has over $12 billion and the Mt. Gox estate has more than $8 billion of assets, according to data by blockchain tracing platform Arkham Intelligence.

"The direction of bitcoin in the coming days will be determined by the selling pressure from Mt.Gox users," Lin added.

"The market expects most Mt. Gox users dump their tokens, but we might see a bounce back if the selling is lower than anticipated," she said. "On the other hand, if there is enough selling to push the price lower, we might be looking at the $50,000 level soon."

Markus Thielen, founder of 10x Research trimmed his $55,000 price target to $50,000. "This situation may compel ETF holders and miners to liquidate more positions," he said in an emailed note, adding that August and September are historically "challenging months" for bitcoin. However, he added, "if the Federal Reserve cuts interest rates in September, bitcoin could see another rally attempt."

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