This article provides an overview of Crypto Risk Index, an innovative index that provides the level of cryptocurrency market investment risk and also risk level of top 5 cryptocurrencies (based on market cap). This index is another tool in your crypto trading toolbox to inform your trading strategy.

Recently, and with cryptocurrency trading becoming more popular, investors have been looking for a reliable technical index they can use to inform their trading strategy. Other indexes exist but they are either not reliable or they are heavily influenced by social media campaigns.

To address this need, Crypto Risk Index was introduced as a technical index by Crypto Market Buzz (CMB) which provides an hourly update to the index, so you can stay up-to-date with the latest crypto markets 24/7. This website is a crypto guide and educational resource, and in addition to the crypto index includes Live Markets, Crypto Market News, and answers to the most frequently asked questions (FAQs) on cryptocurrency trading.

Crypto Market Buzz (CMB) uses a proprietary algorithm to calculate the risk index and market momentum for each major cryptocurrency and also for the crypto market every hour. Using these risk indexes, you can get deep into the market and inform your crypto investment strategy on the go and every hour. CMB’s risk index is based on technical analysis of the underlying crypto asset fundamentals. Therefore, the index is not influenced by social media marketing campaigns, FUD, or orchestrated Pump & Dump movements. You can reliably consider the Crypto Risk Index as another tool in your technical analysis toolbox.

The Crypto Risk Index bullet chart shows the current Index (as of the last hourly update) comparing to the last daily close Index (as of the last 12:00 AM UTC update), so you can see the market trend as of last daily close. In addition, you can see the Risk Level over the color spectrum, running from (Index 0) to Risk (Index 100) levels. The summary also includes Market Momentum, which is the market strength or weakness indication.

The Crypto Risk Index evaluates the risk of entering crypto investments by simplifying the technical analysis indicators into a single index that provides you with the depth-of-the-market knowledge. You can use the Index to inform your investment strategy. The proprietary algorithm behind the index learns from historic price and volume data and takes into account the following technical fundamentals for each cryptocurrency and the global market:

• Short-term, mid-term, and long-term price movements

• Short-term volume changes

• Short-term and mid-term volatility

  
  

When the risk level is Low, it simply means there is low probability for the price to drop (but never zero probability). The lower the index, the lower this probability. At the same time, when the risk level is High or Extreme , there is high probability for a price correction, and the higher the Index, the higher this probability (but not necessarily 100% probability for price correction). Figures below shows the relationship between Bitcoin (BTC) and Ethereum (ETH) price and the Bitcoin Risk Index history (updated hourly), and also areas of and Risks (As of June 6, 2023).

The Crypto Risk Index will only near 0 (Low Risk) or 100 (Extreme Risk) in a market with strong momentum. Even though 0 and 100 are theoretically possible, the Index may not reach these numbers in reality since the market usually balances itself out and reverses the direction when it nears the ends of the risk spectrum. It should be noted that the Crypto Risk Index can stay in High or Extreme Risk regions for extended periods in a Bullish market (for example January to April of 2021).

Similarly, the Index can remain in the Low or Medium levels for a long time in a Bearish market (for example June to July 2021). Therefore, the Crypto Risk Index should be used in the context of the market trends and in conjunction with the general knowledge of the underlying cryptocurrency.

What is the Market Momentum?

Market Momentum shows the strength of the market and its direction. A declining market is either Bearish (strong) or Slightly Bearish (weak), and a ascending market either Bullish (strong) or Slightly Bullish (weak). A market that is moving sideways has a Neutral momentum.

How to Interpret the Crypto Risk Index?

Generally, when the Risk Index goes above 25 from Low into Medium Risk or above, it is a sign of a bullish market. and when it slides below 75 from Extreme into High or below, it is a bearish sign. An Index lower than 40 indicates the underlying cryptocurrency is under pressure, and an Index lower than 25 (Low Risk) indicates an extreme pressure on the price as a result of large sell volumes. Similarly, an Index higher than 60 conveys the underlying cryptocurrency is inflated due to high demands and buy volumes, and when the Index is higher than 75 (Extreme Risk) it indicates highly inflated prices, usually due to hype in the market and very large buy volumes.

Inexperienced traders, influenced by emotions and social media campaigns, FOMO buy when the Risk Index is High or Extreme and when the price correction happens become “bagholders” or end up panic selling their assets when the Risk Index is Low or Medium, resulting in capital loss. Experienced traders, on the other hand, buy when the Risk is Low or Medium and momentum is Bullish and sell (or HODL) when the Risk is High or Extreme and momentum is Bearish.

Final Thoughts …

The information provided on the CMB website and also the Crypto Risk Index are for informational purposes only, and do not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website’s content as such.

Crypto Risk Index is not a magic bullet. It’s also not a predictive index (no such thing exists!). The Crypto Risk Index only gives you more information about the crypto market at that point in time and it’s another technical index in your trading toolbox. You need to fully understand the underlying fundamentals of the cryptocurrency market and use technical indexes together with your own knowledge, intuition, and risk tolerance when trading crypto assets.

Crypto Market Buzz does not recommend trading cryptocurrencies, including buying, selling, or holding any type of cryptocurrencies. You need to do your own research and understand the underlying volatility and legal and political aspects of cryptocurrency markets. Also, you need to consult your legal, financial and tax advisors before investing in cryptocurrencies. There are risks in cryptocurrency investments. Do your own research and invest wisely. This article or the CMB website are not responsible for your capital loss.