Extreme Fear Index

Definition ∞ An Extreme Fear Index is a market indicator that measures the level of investor anxiety in a specific asset class. This index typically aggregates various data points, such as market volatility, trading volume, social media sentiment, and dominance of specific assets, to produce a numerical score. A high score on the fear side suggests investor panic and potential overselling, while a low score indicates complacency or excessive optimism. It provides a contrarian signal for traders seeking to capitalize on market extremes.
Context ∞ In cryptocurrency markets, the Extreme Fear Index is a widely followed metric, often reported in crypto news to gauge overall market sentiment and predict potential reversals. Periods of extreme fear can signal buying opportunities for long-term investors, while extreme greed might suggest an impending market correction. Analysts constantly reference this index to contextualize market movements and guide investment decisions during periods of heightened uncertainty.