With the price of Bitcoin surging to a new all-time high above $82,000 Monday morning, optimism among crypto investors has reached extreme levels.

A key market sentiment gauge, the Crypto Fear and Greed Index, surged to an “Extreme Greed” reading of 78 out of 100 Sunday—marking its second-highest level this year after March's peak of 82. By Monday morning, it had receded to a reading of 76.

The dramatic shift in market sentiment has seen the index move from neutral (49) just 30 days ago to its current elevated position. Typically, it indicates a market environment characterized by heightened optimism and potential risk-taking behavior among investors.

A surge in sentiment coincides with Bitcoin jumping above $80,000 for the first time on Sunday, reaching a new all-time high above $82,100 Monday morning, up 3.6% on the day, per CoinGecko data.

Historical data shows a consistent upward progression in both price and sentiment since 2018, indicating a maturing crypto market.

Ethereum also registered relative gains, reclaiming $3,000 last week, and extended that rally to highs of $3,241 Monday morning, according to CoinGecko data.

Meanwhile, meme coins such as Floki and Elon are also seeing spikes, with Dogecoin reaching its highest price in three years.

Crypto prices and the U.S. election

The broader market enthusiasm comes amid changing geopolitical conditions, with Donald Trump securing a second term as U.S. President in what billionaire investor Mike Novogratz called the “most important day” for crypto. Trump made crypto-friendly promises a pillar of his campaign, with the market anticipating greater regulatory clarity following his election.

“Clearer rules and a friendlier stance towards crypto businesses has the potential to increase investor confidence, encouraging further innovation and mainstream adoption of virtual digital assets,” Vishal Sacheendran, Head of Regional Markets at Binance, said in a note shared with Decrypt.

Fear, Greed and market moves

While the Bitcoin Fear and Greed Index is hinged on multiple weighted components specific to Bitcoin, it also serves as a general indicator of the broader crypto market.

According to data from Coinglass, the Crypto Fear and Greed Index shows a consistent pattern following Bitcoin price moves, with significant market corrections typically materializing within one to three weeks of reaching "Extreme Greed" territory.

Extended periods in the "Extreme Greed" zone (75-100) have historically preceded market corrections, though the timing and magnitude of those movements remain unpredictable.

The most notable instance occurred in February 2021, when the index peaked at 95 before Bitcoin reached $64,000 by April 2021 and dropped to $30,000 in the three months following. Data from the index reveals market sentiment dropped to extreme lows of 10 at that time.

Coinglass data also points to over $123 million in Bitcoin short positions liquidated over the past 24 hours, with the price rising 3.6% over the same period.

While there's often a strong correlation between price movements and sentiment readings, the relationship may not always be direct. Market volatility and other external factors can influence sentiment outside price action, creating occasional divergences.

“Based solely on this data, the short-term market has accumulated certain risks, with BTC prices hitting new highs,” explains Willy Chuang, COO at Woo X.

“Historically, the Fear & Greed Index can reach up to 90 during extremely bullish market conditions; currently, at 76, it has entered a risk phase,” Chuang told Decrypt, adding that a slide to lower prices is “inevitable in the future as a continuous release of risks” during the rising trend.