The crypto market sentiment had been on the rise at the start of August, but as the month draws to a close, a market crash has dragged it back to August levels. The Fear & Greed Index had previously reached a local peak of 42 when the price of bitcoin had recovered to $25,000. However, since then, the downtrend has been on a decline back into the Fear territory.

Fear & Greed Index At Mostly Lows

The Crypto Fear & Greed Index has declined to a score of 25. This puts it dangerously close to falling back into the Extreme Fear territory. Now, the reason that market sentiment is so important to gauge is it can tell exactly how investors are feeling towards the market as a whole.

Take a score below 20 on the Fear & Greed Index. This means that the market is in extreme fear. At times like these, investors are extremely wary about the market, and there is not a lot of money flowing. This inadvertently leads to lower prices because there is not enough demand to meet supply.

Total market cap above $1 trillion | Source: Crypto Total Market Cap on TradingView.com

Since the score is currently at 25 when it was 28 the previous day, it means the market is getting more fearful with each passing day. The last time it was this low was back at the beginning of July, and one thing that characterized the beginning of July was the low market prices. 

What The Crypto Market Holds

It is always interesting to see how the market follows investor sentiment and vice versa. Since the score has gotten so low, historically, data tells us that it is likely to continue this way for a while before there is a recovery. Normally, there is hardly a time where the Fear & Greed Index touches a score of 25 that it does not continue down into extreme fear territory before any type of recovery is seen.

If this is the case, then it is likely that the crypto market will lose more value in the coming days. A correlation between the present market and investor sentiment falling further into extreme fear would see bitcoin price likely touch below $20,000 and the overall market cap at around $850 billion.

This follows the wariness that investors had towards the market earlier in the year, even when the prices were rallying. Data from Glassnode shows that bitcoin investors did not increase their volumes during the recovery like they normally would.

For now, there is an air of caution resting heavily on the crypto market. The bear trend was expected to continue as it had done in previous bear markets, but the recovery had caught most of the market off-guard. Most believed it to be a bull trap, hence taking a rather hands-off approach to the rally.

Featured image from African Leadership Magazine, chart from TradingView.com

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Source and More information: Crypto Market Sentiment Plunges To 1-Month Lows, What Lies Ahead?

Author: NewsBTC.com