Crypto Sentiment Extremes and Bitcoin Spread Estimates

Summary

This analysis asks whether extreme readings of a crypto sentiment index coincide with wider estimated Bitcoin trading spreads. It uses daily BTC/USDT observations spanning February 2018 through January 2026, with the spread represented by a high-low price estimator. The raw comparison shows a larger estimate on extreme-sentiment days than on neutral days.

The apparent difference shrinks after accounting for realised volatility. A regression with nonlinear volatility and lagged momentum controls produces an uncertain estimate whose confidence interval includes no effect. A non-parametric grouping approach yields a positive contrast under circular-shift testing, but tests across individual volatility groups do not hold up after multiple-testing adjustment. Models distinguishing whether the floored measure is positive from its size are also imprecise. Taken together, the evidence supports a descriptive association that changes with the analytical specification; it does not demonstrate a durable or causal liquidity premium.

Key ideas

• Extreme sentiment days have higher raw high-low spread estimates than neutral days.
• Adjusting for realised volatility reduces the observed contrast.
• A controlled regression estimate is uncertain and compatible with no difference.
• A stratified analysis finds a positive contrast, while subgroup tests weaken after correction for multiple comparisons.
• The findings are specification-dependent and do not establish causation or a stable premium.

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# Does Crypto Sentiment Extremity Widen Estimated Spreads? Evidence Depends on the Specification


# Does Crypto Sentiment Extremity Widen Estimated Spreads? Evidence Depends on the Specification









We examine whether extreme values of the Crypto Fear & Greed Index are associated with a daily high-low spread estimate for Bitcoin. The sample contains 2,896 BTC/USDT observations from February 2018 to January 2026. We find an unconditional extreme-minus-neutral gap of 61.99 basis points. After close-to-close realised-volatility-quintile demeaning it is 24.79 basis points, although none of the five separate quintile contrasts survives Holm correction. With quadratic realised-volatility and strictly lagged momentum controls, the HAC estimate is 11.81 basis points (95% CI [-2.31,25.93], p=.101). A fixed non-parametric stratification gives 20.44 basis points (p=.0195 under circular shifts), while separate models for a zero-floored estimate's incidence and positive magnitude are imprecise. The results therefore show only a descriptive, specification-dependent association. We conclude that they do not establish a stable or causal liquidity premium.

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