The Bitcoin fear and greed index registered "extreme fear" Wednesday—but that could be a buying opportunity for gutsy investors, especially as the timid have sold into a falling market.
Conversely, when investors are hungry for further gains in a rising market, a high reading on the greed side of the index may signal a coming correction.
The Bitcoin market doesn't rise or fall randomly, but there's sometimes a significant emotional component in its pricing, especially among retail investors who chase a rising market after developing a case of FOMO (Fear Of Missing Out) or dump their holdings in a near panic when the market falls.
That's part of the reason for Bitcoin's recent manic price swings.
Most major and institutional investors didn't sell when the market fell and some major companies, including MicroStrategy, bought the dip to increase their holdings.
Bigfoot investors see Bitcoin as a buy-and-hold asset and don't fret about daily price fluctuations or even a sharp downturn.
The price of Bitcoin bounced around $40,000 Wednesday, a week after its price fell about 50% from its all-time high. The world's largest cryptocurrency by market cap plunged after Washington announced plans to increase regulation and tighten tax compliance.
The Federal Reserve, the nation's central bank, said it plans to issue a research paper this summer outlining the benefits and risks of issuing a U.S. digital currency. Some see this as a direct challenge to Bitcoin's future as Uncle Sam seeks to reclaim its monopoly on issuing currency.
China banned the use of Bitcoin and shutdown mining operations after citing the large amount of electricity needed to power the activity 24-hours a day. But Bitcoin got a lift after Elon Musk said he met with miners to discuss the use of renewable energy sources in North America.
The crypto market appears set to diverge after the recent shakeout. Bitcoin and Ethereum lead, followed by everything else, including Dogecoin.
Too many people pay too much attention to Dogecoin, a parody of Bitcoin launched in 2013 that never reached $1 in value and fetched $0.34 in early trading Wednesday.
Dogecoin is sometimes plugged by shrewd CEOs like Tesla's Elon Musk and Mark Cuban, not as an investment but as a sure-fire way to gain media attention.
Musk proclaimed himself "Dogefather" to boost his appearance on Saturday Night Live and Cuban said his NBA team, the Dallas Mavericks, would accept the crypto as payment for souvenirs.
But in the real world, or at least as real as cryptocurrencies can be in a market animated by the "Tinkerbell effect," Bitcoin and Ethereum appear to be emerging as the long-term winners.
Worldwide, there are about 4,000 cryptocurrencies. Most have little or no following and are thinly traded. Litecoin, Cardano, Polkadot, Stellar, Chainlink, XRP and Tether were developed by top engineers, but have yet to gain a wide following.
Polkadot is designed to mesh with other blockchains, the unalterable record of all transactions, but it hasn't caught the attention of major investors.
Tether is pegged to the value of the U.S. dollar to avoid wild price swings. Tether's system is designed to permit easy conversion of cryptos into greenbacks. This may be a key step if cryptocurrencies are ever used extensively in commerce.
A future historian may someday write that the less popular alternative coins were valuable for innovations later adopted by others rather than as standalone cryptos.
But Ethereum may also have a path to widespread acceptance. It is the world's second largest cryptocurrency by market cap, and has generated innovative financial products that could lead to decentralized finance, called "DeFi" in crypto circles. DeFi allows for peer-to-peer transactions without using a commercial bank, the St. Louis Federal Reserve Bank said in a research report.
The crypto relies on "smart contracts" to automatically launch computerized transactions when specific conditions are met. It's now a niche market, but might be the guide for future transactions and might be widely used in commerce while Bitcoin remains a long-term investment.
But Uncle Sam's digital currency, if successful, might turn a good chunk of the cryptomarket into a relic from the past much like the Commodore 64, Apple Macintosh and the IBM PC 5150.
In mid-day trading Wednesday, Bitcoin changed hands at $39,123.91, up 3.39% in the last 24 hours and up 33.21% for the year. The 24-hour range is $37,222.89 to $40,894.44 The all-time high is $64,829.14. The current market cap is $732.33 billion, CoinDesk reported.
Market Pulse
Strong demand for new and existing houses, limited supply and low interest rates boosted prices in March at the highest annual rate since December, the S&P CoreLogic Case-Shiller National Home Price Index reported.
Prices in major metropolitan areas nationwide posted 13.2% annual gain in March, up from 12.0% in the previous month.
Phoenix led the nation with a 20.0% year-over-year price increase. Prices rose 19.1% in San Diego and 18.3% in Seattle.
S&P's latest report tracks other measures of the housing market.
The U.S. Commerce Department said the median price for a new house in April rose 20.1% from a year ago to $372,400. It was the steepest annual gain since 1988. The National Association of Realtors (NAR), a Washington-based trade group, said the median price for an existing house increased 19.1% in April to $341,600.
The price increases are good news for sellers and create an increasingly competitive market leading to bidding wars in some parts of the country.
But higher prices make it more difficult for first-time buyers to compete and some may be forced to continue renting.
About 27% of new houses sold in April were listed at less than $300,000, the Commerce Department said.That's down from 45% of sales a year ago.
The NAR said there were 1.07 million existing houses listed at the end of March, a decline of 28.2% from a year ago. The number of existing home sales fell in April for the third consecutive month, the longest downturn since spring 2020 and underscoring limited inventory.
Sales of new houses declined 5.9% in April from March to an annual rate of 863,000. But the pace was 48.3% higher than the worst of the COVID-19 pandemic in April 2020, the Commerce Department said.
The price of lumber is up sharply this year. Production shut down during the pandemic and the quick rebound in demand as the economy restarted caught suppliers short, driving up prices.
The steep increase in lumber prices has added nearly $36,000 to the price of a new single-family house, the National Association of Home Builders said.
"Affordability factors are clearly affecting new home sales," Chuck Fowkem, NAHB chairman, said in a release. "A growing number of builders are limiting sales in order to manage supply chains, including access and cost factors associated with lumber, appliances and other building materials. Policymakers need to find ways to improve the supply chain, by facilitating more domestic production, or in cases where that cannot be done, suspending tariffs to allow for more imports."
The Washington-based trade group said there were 316,000 new single-family houses for sale last month, 33.3% lower than April 2020. The supply of new houses won't increase anytime soon. Builders confront a shortage of skilled workers and limited availability of lots for new construction.
Prices for materials used in residential construction increased 1.7% in April and 12.4% in the last 12 months, the U.S. Bureau of Labor Statistics reported.
The declining value of the dollar has driven up the cost of lumber imported from Canada. The U.S. dollar has depreciated 5% year-to-date and 13.1% in the last 12 months, NAHB said.
The price of gypsum, ready-mix concrete and copper also have increased.
The Federal Reserve, the nation's central bank, has held interest rates close to zero since March 2020 as part of the effort to support the economy during the COVID-19 pandemic and spur the recovery.
This keeps mortgage rates low. It also makes it cheaper for businesses and individuals to borrow and make credit purchases. Consumer spending represents about two-thirds of the U.S. economy.
