The crypo fear and greed index retreated sharply this week as traders waited for the upcoming Federal Open Market Committee (FOMC) decision. The index also slipped as a sea of red intensified in the crypto industry.
Data by CoinMarketCap shows that the crypto fear and greed index tumbled to the greed zone of 74 on Wednesday morning. It was recently hovering at the extreme greed zone of 90 as cryptocurrencies continued their strong rally.
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The index tumbled as most cryptocurrencies dipped. After soaring to $73,500 last week, Bitcoin has dropped to below $62,000. This sell-off has also intensified among altcoins. Ethereum fell below $3,200 while the total market cap of all coins plunged to $2.37 trillion.
The traditional fear and greed index that is tracked by CNN Money has also retreated to the greed zone of 71. A look at its sub-indices shows that the market momentum, stock price strength, and junk bond demand have remained in the greed zone.
At the same time, the safe haven demand, put and call options, and stock price breadth are in the greed area.
This price action of the two fear and greed indices is happening as the Federal Reserve is set to make its second interest rate decision of the year. It started this meeting on Tuesday and will deliver it later on Wednesday.
Like the Bank of Japan, which hiked its rates for the first time in 17 years, analysts anticipate a highly hawkish Federal Reserve. It will likely leave rates unchanged and then warn that they will remain higher for longer.
The Fed is concerned that inflation is not falling quick enough. The headline Consumer Price Index (CPI) rose to 3.1% while core CPI jumped to 3.8% in February. These numbers are substantially higher than the Fed’s target of 2.0%.
Fed’s actions have an impact on the prices of cryptocurrencies like Bitcoin, Ethereum, and Ripple. For example, most of these coins have surged hard recently as most investors anticipated that the Fed would start cutting rates in June.
The crypto fear and greed index has slipped as most coins have tumbled. This decline is likely because of the fears that the Fed will be hawkish. It is also because of profit-taking since most coins have been in a strong rally recently. It is hard to see a coin that has not risen by more than 100% from its lowest level in 2023.
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