The Crypto Fear and Greed Index dropped to 25 yesterday, signaling “Extreme Fear” in the cryptocurrency market. Yet, an analyst suggests that the current panic might be exaggerated, largely driven by recency bias.
This comes as Bitcoin is navigating market volatility triggered by broader macroeconomic conditions. The leading cryptocurrency has fallen 11.4% year to date, reflecting the wider sentiment of fear and uncertainty.
Is the Recency Bias Inflating Fear Around Bitcoin’s Price?
In the latest X (formerly Twitter) post, analyst Lark Davis highlighted an interesting trend in the Crypto Fear and Greed Index. This sentiment gauge measures market emotions from 0 (Extreme Fear) to 100 (Extreme Greed).
On April 3, it plummeted to a low of 25, indicating heightened anxiety among investors, even though Bitcoin was trading around $80,000. In fact, the latest value of 28 also indicated substantial fear among market participants.
Crypto Fear and Greed Index. Source: Alternative.me
Nonetheless, according to Davis, the sentiment was out of place, given Bitcoin’s price performance. He noted that the index’s decline contrasted with market conditions six months prior. Despite Bitcoin trading at $65,000, the index showed a neutral reading then.
“This is what’s called “recency bias,” and you can leverage it,” he wrote.
For context, recency bias refers to the tendency of investors or traders to give more weight to recent events or information when making decisions while disregarding longer-term trends or data. This psychological bias often leads to overreaction to short-term market movements, such as a sudden price spike or a crash.
“So that’s why we’re seeing higher fear readings at today’s $80,000, than yesterday’s $65,000,” David remarked.
He suggested that the fear seen in the market is not entirely justified and that reactions to short-term fluctuations are often more extreme than necessary.
This coincides with Bitcoin continuing to see fluctuations amid President Trump’s tariff plans and fears of a potential recession. While it remains relatively steady compared to traditional markets, the decline in Bitcoin’s value has still raised doubts about its stability and long-term potential.
Notably, Michael Saylor, chairman of Strategy (formerly MicroStrategy), highlighted that short-term volatility doesn’t reflect Bitcoin’s long-term potential.
“Bitcoin is most volatile because it is most useful,” he said.
Saylor explained that Bitcoin’s volatility is largely due to its liquidity and 24/7 availability, Which means it is more susceptible to rapid sell-offs during market panics. However, Saylor reiterated that while Bitcoin behaves like a risk asset in the short term, its long-term value is unaffected by these fluctuations, reinforcing its role as a store of value.
Meanwhile, Arthur Hayes, the former CEO of BitMEX, provided another perspective on the ongoing market conditions.
“Some of y’all are running scurred, but I love tariffs,” Hayes stated.
According to Hayes, global economic imbalances will eventually be corrected. While short-term market pain is inevitable, Hayes predicts that the solution will likely involve printing more money, which he views as beneficial for Bitcoin.
“The $ is weakening alongside foreigners selling US tech stocks and bringing money home. This is good for BTC and gold over medium term,” he forecasted.
His comments align with BeInCrypto’s recent report on the inverse correlation between the US Dollar Index (DXY) and BTC. Thus, a decline in the former could benefit the latter.
Bitcoin Price Performance. Source: BeInCrypto
For now, Bitcoin continues to see modest losses. Over the past week, it has declined by 4.5%. Meanwhile, the coin has shed 1.0% of its value over the past day. At the time of writing, Bitcoin was trading at $82,855.
