Crypto Fear and Greed Index Drops to Five-Month Low of 25, Signaling 'Extreme Fear'

The widely-watched Crypto Fear and Greed Index, a market indicator that uses social media posts, volatility, trends and prices to gauge trader sentiment, dropped to a five-month low of 25 in its latest update.

Cryptocurrency traders are showing signs of extreme fear, according to a widely followed market indicator, as the recent sell-off in digital assets continued on Monday.

The latest Crypto Fear and Greed Index, which uses social media posts, volatility, trends and prices to gauge trader sentiment, dropped to a five-month low of 25 in its latest update.

That marks a steep decline from the previous day's reading of 49, which fell into the "greed" zone. It comes as the total crypto market capitalization fell by 10% over the past 24 hours, with bitcoin and major tokens like solana (SOL) and XRP (XRP) dropping by more than 14%.

The Fear and Greed Index, created by alternative.me, measures how people feel about crypto on a scale from 0 to 100. A low number, like 25, means fear is taking over, while a high number shows excitement or greed.

Tuesday's drop from 49 to 25 marks one of the sharpest shifts since September, quickly signaling an extreme shift toward bearish sentiment.

Several factors could be contributing to the panic, including money flowing out of bitcoin ETFs, with more than $1 billion withdrawn in the last two weeks. Another reason could be the lack of major catalysts to sustain a rally that began with crypto-friendly Republican Donald Trump's victory in the November election.

Nasdaq futures signaled a continuation of losses in technology stocks on Tuesday, and strength in the Japanese yen sparked fears of an August-like risk aversion.

However, there is still hope for bullish traders. Extreme fear can indicate that investors are overly concerned, presenting a short-term buying opportunity as assets become oversold. Some traders also believe that weak U.S. economic data could prompt central banks to take steps to stimulate the economy, a move that could ultimately fuel a rally.