$250k Bitcoin incoming? Here's what happened the last time markets hit Extreme Greed mode

The intelligent investor is a realist who buys from pessimists and sells to optimists.

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

— Warren Buffet, New York Times op-ed, 2008

One simple metric to tell you how the crypto market is feeling at any one time is the Fear and Greed index (simplified here as the Greed Index).

Developed by LookintoBitcoin, it’s inspired by Warren Buffett’s famous phrase.

History never repeats. Or does it? 

Back on 6 November 2020, Bitcoin was trading at $15,548. But momentum was building to a fever pitch. 

On this day, it was the last time that the Bitcoin Fear and Greed Indicator hit 90 out of 100, signalling Extreme Greed. 

It had been six months since the much-heralded Bitcoin halving, where the reward for processing blocks fell from 12.5 Bitcoins to 6.25 Bitcoins. This event — historically — also tends to act as a catalyst for upwards price gains. 

Out in the real world, Covid-19 cases passed 50 million globally. Joe Biden had just been elected the 46th president of the United States, beating Donald Trump. And Baby Shark (sorry) by South Korean kids channel Pinkfong became the most-watched Youtube video with over 7 billion views.

Tales of Bitcoin’s scarcity were everywhere in the news. 

“Wealth managers who didn’t buy Bitcoin for their clients will be like those wealth managers who never bought Amazon: out of business,” screamed a Coindesk op-ed.

Over the next 63 days, the Bitcoin price almost tripled.

By 8 January 2021, it was trading 264% higher, at $41,078. 

By 13 April 2021, Bitcoin hit $63,484, 308% higher.  

Today, 5 March 2024, the Bitcoin Fear and Greed Index hit 90 out of 100 for the first time since 6 November 2020. 

If the same 300%+ price action were to occur from here, it would mean that by May 2024, Bitcoin would hit somewhere in the region of $250,000.

As of 5 March 2024, we are still some 40 days away from the fourth Bitcoin halving. 

Extreme Greed = Extremely Unusual

If this is your first crypto bull market, I would only say: be careful. I started reporting on Bitcoin in late 2016. Since then, I’ve lived through three full bull/bear cycles.  

These periods of exceptionally high sentiment are very unusual in the grand scheme of things. In fact, since these records began, six years or 2,220 days ago, there have only been 120 days when markets were in Extreme Greed mode.

These periods tend to be shortlived. The average length of time spent in Extreme Greed mode over the last six years is 7.5 days.

And there tends to be a reaction on the other side as mean reversion takes place, and sentiment snaps back to a more sober reality.

That is not to say that Bitcoin will not appreciate higher from here. In fact, if history is our guide, then Bitcoin will end this bull run dramatically higher. But as ever — timing the market is near-impossible, and none of us can tell the future.

How to Measure Fear and Greed

A score of 80-100 indicates Extreme Greed

A score of 60-79 indicates Greed

A score of 40-59 indicated Neutral

A score of 20-39 indicates Fear

A score of 0-19 indicates Extreme Fear

A history of Bitcoin Fear and Greed

It has been 2 years, 116 days since Bitcoin last reached Extreme Greed: 9 November 2021.

This was the day after Bitcoin reached its previous all time high price of $67,492.

The five other times that the indicator reached 80/100, Extreme Greed, were:

1. 16 June 2019, after which the price of Bitcoin climbed from $8.9k to $13k in 10 days

2. 2 August 2020, when the price of Bitcoin was rangebound between $11k and $13k for two months

3. 6 November 2020, where over the next 63 days, the price of Bitcoin climbed from $15.5k to $41.4k, then dropped to $34k in three days.

4. 4 February 2021, after which the price of Bitcoin climbed from $36.8k to $57k, then dropped to $47k in 10 days.

5. October-November 2021, when Bitcoin reached its previous all time high of $67.4k

Rapid Bitcoin price appreciation

Measuring how long it has taken the Bitcoin price to jump in $10,000 increments this cycle, we can see: 

• $30k to $40k: 43 days (22 Oct 2023 to 4 Dec 2023)

• $40k to $50k: 72 days (4 Dec 2023 to 14 Feb 2024)

• $50k to $60k: 14 days (14 Feb 2023 to 28 Feb 2023)

How to calculate Fear and Greed

There are four main inputs. 

1. Volatility of Bitcoin price 

How much the Bitcoin Price moves in any direction (up or down) in a given day. This is measured relative to its moves in the last 30 days, and the last 90 days. 

When there are large increases in Bitcoin price volatility, it is normally the sign of an exceptionally fearful (when prices are falling) or exceptionally greedy (when prices are rising) market. 

2. Bitcoin trading volume

How much Bitcoin is changing hands between buyers and sellers. This is measured on a daily basis, relative to its moves in the last 30 days, and the last 90 days. 

When there are large increases in BTC trading volume, it is normally the sign of an exceptionally greedy market. 

3. Social media sentiment on Bitcoin

How positive people are feeling about BTC, posting on Twitter (mainly), and how many Google Trends searches there are for Bitcoin. Sentiment analysis assigns a score to each particular day. This is measured on a daily basis, relative to its moves in the last 30 days, and the last 90 days. 

4. Bitcoin dominance as a proportion of the total crypto market cap. 

How much of the total crypto market cap Bitcoin makes up. 

For example, as of 29 February 2024, Bitcoin’s market cap is $1.2 trillion. The total crypto market cap is $2.33 trillion. Bitcoin’s dominance is (1.2/2.33)*100 = 53.1%

When there are large falls in BTC dominance, it is normally the sign of investors rotating capital out of the relatively low-risk Bitcoin and into more unknown, relatively higher-risk cryptocurrencies further down the market cap list. This is usually the sign of an overly greedy market. 

In sum:

When a market is overly greedy, investors should be taking profits. 

When a market is overly fearful, investors should be investing capital for the future. 

Please note that any analysis here is speculative and does not constitute an inducement to buy or sell crypto or digital assets. Crypto is a high-risk asset class and extremely volatile. Capital is always at risk, you should be seriously prepared to lose all money invested, and nothing is ever certain.