Price movement charts can tell us a lot. And also a little, if we do not have anything to compare them to. We are partially blind without knowing the context and without seeing the bigger picture.
This is where various indexes, adjusted specifically for crypto investors, can help. These instruments are designed to track the performance of a broader cryptocurrency or NFT market and reflect changes in asset prices.
Simply speaking, indexes are like indicators of a general trend, be it the broader market or only some particular segments. Here are some of the key indexes crypto or NFT investors should follow.
The Standard and Poor’s 500, also known as S&P 500, is a stock market index that tracks the performance of the largest market cap companies publicly traded on stock exchanges in the United States.
It is one of the most followed stock market indices, widely considered Wall Street’s benchmark equity index. S&P500 tracks the market capitalization of the 500 major companies and represents the stock market performance.
Stock market movements could give valuable insights to cryptocurrency investors on where digital assets may move. This is because the dominant cryptocurrency, Bitcoin, is in positive correlation with the stock market, meaning that it mostly moves in tandem with stocks. Since Bitcoin acts as the crypto space flagman, numerous altcoins closely follow its moves. Because of such correlation, changes in the stock market do have a chain reaction and have an impact on cryptocurrency prices.
Bitcoin Dominance Index
Bitcoin is the dominant and the most influential asset in the cryptocurrency space and numerous smaller coins follow its movements. However, it is not powerful enough to always stay at the same dominance level.
The dominance of Bitcoin is expressed by the ratio between Bitcoin’s market capitalization to the total market cap of the entire cryptocurrency market. The ratio is usually called the Bitcoin Dominance Index. It is calculated by dividing the BTC market cap by the total cryptocurrency market cap.
Bitcoin dominance is an extremely important parameter for traders and investors, as it indicates the beginning or end of the altcoin season. The altcoin season refers to the period when altcoins steadily outperform Bitcoin in terms of market capitalization.
The shift in dominance is one of the best moments for investors and traders to diversify and adjust their crypto portfolios accordingly.
The market of non-fungible tokens (NFT) is extremely dynamic. New collections appear every hour, revolutionary concepts emerge and are instantly established as trends. The use cases of NFTs continue to diversify.
As the market activity becomes so broad, it becomes difficult to track trends in varying categories of NFTs. This is where NFT Indexes come in handy. They provide the ability to track a specific NFT market segment and measure the performance of it or even of the whole NFT market over time.
One of the options to track different NFT market segments is six NFT Indexes created by blockchain analytics firm Nansen. They capture different NFT marketplace’s activities on the Ethereum blockchain, be it metaverse, gaming, social, art NFT markets, or the broad NFT market itself.
Each of them tracks a basket of NFT collections that represent different segments and provide investors with historical data. And having such data in front of you always helps to see a broader picture and make better-adjusted investment decisions.
Fear and Greed Index
Technical analysis patterns, indicators, and tools may create an impression of rationally based investments when talking about crypto. But the truth is that a big part of investment decisions is caused by psychological and emotional behavior.
The crypto space distinguishes two key emotions that most influence our actions: fear and greed. Excessive fear tends to drive down asset prices, and too much greed tends to have the opposite effect.
One of the tools to measure the general market sentiment is the Crypto Fear and Greed Index. The index follows multiple factors including the market volume, volatility, dominance, social media activity, and general market trends. All these data are collected from various sources and daily “translated” into a scale that represents varying degrees of fear or greed sentiment.
Fear and Greed Index data helps to get a bigger picture of what to expect from the cryptocurrency market. Knowing the sentiments of other investors is useful. The times of extreme fear, when many feel uncertain and worried, could be the perfect “buy the dip” opportunity. And vice versa: extreme greed could mean overconfidence and signal an upcoming correction.