Crypto Crash Drives Fear & Greed Index to Lowest Since Early 2023

Earlier this year, the index hit extreme greed levels in March, near the local peak of the crypto market, but it has now swung sharply in the opposite direction.

The Crypto Fear & Greed Index, a key contrarian indicator for buying and selling, suggests potential further downside for Bitcoin’s price, according to analysts. Rachel Lin from SynFutures highlighted that the market faces significant pressure from the sale of seized BTC by the German and U.S. governments, as well as sell-offs from Mt. Gox user refunds, creating a multibillion-dollar overhang.

Crypto investor sentiment has plummeted to its most negative levels since the end of the 2022 crypto winter, as Bitcoin’s (BTC) drop below $54,000 has dragged down the entire digital asset market. The Crypto Fear & Greed Index, created by Alternative.me, which measures market sentiment towards Bitcoin and other major cryptocurrencies on a scale from 0 (extreme fear) to 100 (extreme greed), fell to 29 on Friday. This marks its deepest dive into the fear zone since January 2023, when Bitcoin was trading around $17,000 after the devastating bear market of 2022.

In March, the index sent out a contrarian sell signal when it hit 90, close to the 2024 peak of the crypto market and Bitcoin’s all-time high of approximately $73,500. Since then, BTC and Ether (ETH) have dropped 25%-30%, with major altcoins down around 50% and smaller tokens suffering even more.

The question now is whether the bottom is in. While extreme fear levels can present buying opportunities, the situation is complex, with several factors at play. Rachel Lin, CEO and co-founder of SynFutures, noted that the key drivers of the downturn include the sale of seized Bitcoin by the German and U.S. governments, and preemptive selling linked to Mt. Gox investor refunds.

The selling pressure is expected to persist in the short term. The German government still holds approximately $2.2 billion worth of BTC, the U.S. government has over $12 billion, and the Mt. Gox estate holds more than $8 billion in assets, according to data from blockchain tracing platform Arkham Intelligence.

“The direction of Bitcoin in the coming days will be heavily influenced by the selling pressure from Mt. Gox users,” Lin said. “If the selling is less than anticipated, we might see a bounce back. However, if there is significant selling, Bitcoin could soon reach the $50,000 level.”

Markus Thielen, founder of 10x Research, has lowered his price target for Bitcoin from $55,000 to $50,000. He warned that the current situation might force ETF holders and miners to liquidate more positions, especially with August and September being historically challenging months for Bitcoin. However, Thielen added that if the Federal Reserve cuts interest rates in September, Bitcoin could experience another rally attempt.