Crypto Fear and Greed index drops to October 2020 levels

Daniel Fowler
January 24, 2021

Bitcoin was higher on Friday, pushed back above US$32,000 after a series of wild swings the past two days. Commentators have cautioned that a sustained drop underneath $30,000 could presage even more losses in the wake of last year's 300 for each cent surge. Volatility then picked up as the digital asset tumbled.

Bitcoin continues to hover around $31,000.

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Bitcoin's slump has dragged on other top 10 cryptocurrencies, with ethereum, Ripple's XRP, litecoin and cardano all down between 5% and 10%-although polkadot, a rival to the second biggest cryptocurrency ethereum, has managed to hold onto its recent gains. The digital coin could "easily be US$35,000 again tomorrow or could drop through US$30,000 and test notional support at US$27,000". In contrast, when investors are getting too greedy, it could be a sign that the market is due for a correction.Indeed, prior to dropping to 40, the Crypto Fear and Greed Index topped at 95 on January 6, demonstrating that investors turned very greedy amid Bitcoin hitting its all-time highs of $42,000 on January 8. Some argue Bitcoin is also becoming a more mainstream investment with a role to play in hedging risks such as dollar weakness and faster inflation.

During a Senate hearing on Tuesday, Janet Yellen, Biden's pick to head the US Treasury, expressed concerns that cryptocurrencies could be used to finance illegal activities.

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Some strategists are more sceptical. For instance, UBS Global Wealth Management recently warned that there's nothing stopping a wipeout in big-name digital currencies eventually amid regulatory threats and central bank-issued competitors. With a 400% rally in the past year, Bitcoin is now officially being termed as the world's 'most crowded trade'.

Still, some said the pullback comes with the territory for an asset that is some 700 percent above the 2020 low of $3,850 hit in March.

Bitcoin was trading at US$32,499 as of 10:55 a.m.in NY on Friday.

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