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Past performance of bitcoin after extreme fear periods
On average, buying into extreme fear levels in bitcoin has been a profitable strategy
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24 May 2022
Fear and Greed Index touched 2020 lows
The Fear and Greed Index touched 8 on May 17th – the second-lowest recorded fear level in the index's history. We explore bitcoin's performance after periods of extreme fear.In the table, we have calculated the median, average, and lowest returns of bitcoin 30, 60, and 180 days after touching certain extreme fear levels by drilling into Fear and Greed levels from Feb 1st, 2018, to Dec 31st, 2021. We note that bitcoin rarely sees such extreme fear levels and, by extension, that these findings should not shape your active trading strategy. Past performance is not indicative of future performance. Source: Alternative.meThe Fear and Greed Index touched 8 on May 17th – the second-lowest recorded fear level in the index's history. The Fear and Greed Index has been live since February 1st, 2018, and has touched 8 on four previous occasions. The index has since recovered slightly, currently sitting at 12. Nevertheless, the Fear and Greed levels seen since the LUNA meltdown remain unusually low. Below, we drill briefly down into bitcoin’s price performance during extreme fear periods. As we find, Buffet's mantra of buying fear has previously tended to be a good strategy in bitcoin. Source: Alternative.me, Tradingview (Coinbase)By exploring bitcoin's performance after reaching various extreme levels on the Fear and Greed index we see that buying fear has previously been a profitable strategy when measuring median and average returns of previous extreme fear periods. Further, while we find that while bitcoin, on average, tends to yield positive returns in periods of extreme fear, bitcoin has also seen continued sell-offs following extreme fear. Thus, you should not blindly expect that buying into fear and poor momentum is profitable.