Benjamin Cowen – Bitcoin: Fear & Greed (28.01.2025 Summary)

Bitcoin continues to perform well, with its fear and greed index reflecting ongoing optimism in the market. Currently, the index stands at 72, signaling greed.

Despite price increases, Bitcoin's volatility remains historically low. This cycle has seen a record 812 days without a 30% daily close-to-close drop, highlighting stability compared to previous cycles.

Macro conditions, including quantitative tightening, have limited the kind of parabolic rallies seen in earlier cycles. Benjamin suggests that while Bitcoin remains dominant, broader macroeconomic conditions significantly impact its growth.

The fear and greed index captures market sentiment through various factors, including volatility, market momentum, social media trends, and dominance.

Historical analysis shows that when the index reaches the 90–100 range, it rarely stays there for more than a couple of days during this quantitative tightening phase. In contrast, during periods of quantitative easing, such as 2020, the index remained elevated for months, sparking euphoria and altcoin rallies.

Benjamin highlights the tendency of the index to oscillate from extreme greed to extreme fear. He notes that after a peak in March 2024 (index at 90+), it fell to a low of 17 by August 2024, demonstrating the cyclical nature of market sentiment.

Altcoins are struggling compared to Bitcoin, with market sentiment remaining bearish. Indicators like "others divided by Bitcoin" (assets outside the top 10 divided by Bitcoin market cap) continue to show lower highs, reflecting a lack of sustained altcoin growth.

The advanced decline index for the top 100 cryptocurrencies has been in a downtrend since 2021, with more assets declining than increasing.

Monetary policy plays a significant role in altcoin performance. Unlike in 2020 and 2021, when low interest rates and quantitative easing fueled altcoin rallies, the current cycle is marked by quantitative tightening, which has suppressed momentum.

Quantitative tightening has limited the duration and impact of rallies in the fear and greed index. While past cycles saw euphoria sustain for longer periods, this cycle experiences shorter peaks followed by rapid cooling.

Benjamin points to 2019 as a comparable cycle, where the market exhibited similar conditions during a monetary tightening phase. A pivot by the Federal Reserve from quantitative tightening to easing, as seen in 2019, could change this dynamic.

The Federal Reserve faces a challenging balancing act between controlling inflation and addressing political pressure to ease monetary policy. This macroeconomic uncertainty directly impacts cryptocurrency markets.