The Crypto Market's Fear Index Is Flashing Red. Here's What Smart Investors Are Doing About It.

Revered investor Warren Buffett has probably never bought a cryptocurrency, yet his admonishment to "be greedy when others are fearful" is perpetually relevant for crypto investors, especially right now. The crypto fear and greed index, a composite score between zero (maximum fear) and 100 (maximum greed), is at 45 in mid-April.

That's in the fear zone, just below neutral, but barely two months ago, it was at an all-time low of 5 as Bitcoin (CRYPTO: BTC) briefly cratered below $61,000; so the warning light is presently off, but it's unlikely to stay that way for more than a day or two at a stretch, if its recent behavior is any indication at all.

Now, between the Strait of Hormuz crisis pushing oil past $100 a barrel and threatening a global energy crisis and recession, the market appears to be feeling a bit bolder than the conditions imply that it should. Ethereum, (CRYPTO: ETH) Solana, XRP, and other crypto majors are taking these risks in stride.

But for investors with the right temperament, this environment has historically rewarded the patience most people find hardest to sustain, so let's look at what the smartest investors are doing right now.

Image source: Getty Images.

Opportunity is knocking, but many are too scared to answer

Nothing about this ongoing state of market anxiety is irrational. An energy supply disruption of the magnitude we might be looking at now hasn't rattled global markets since the 1970s.

Yet institutional capital keeps flowing to the leading cryptocurrencies all the while. U.S. spot Bitcoin exchange-traded funds (ETFs) attracted $257 million in inflows on April 10 despite global uncertainty continuing to rise. Even on April 6, when the U.S. president threatened to destroy every bridge and power plant in Iran, the ETFs marked $471 million in inflows.

Every prior occasion when the fear and greed index dropped below 10 was followed by positive Bitcoin returns within 90 days. And its price has been flat over the last 30 days.

Smart investors are nibbling right now

For diversified investors, the best approach right now is to nibble on quality assets rather than diving into the deep end. Dollar-cost averaging -- investing the same amount at a set interval no matter what -- sidesteps the impossible task of timing the market, and it guards against the market running away from you when the turbulence arrives.

Bitcoin and Ethereum should probably be the top priority for purchases by crypto investors, because together they form the backbone of the crypto sector, and the conflict with Iran doesn't directly threaten their value. Other leading coins, like Solana and XRP, could be decent pickups, too, but they're riskier, and they're going to be a lot more volatile even in comparison to their norms.

For someone building a well-balanced crypto portfolio over the next five to 10 years, any roughness in the near term isn't a very big deal. The bigger issue is whether assets bought during the fearful times will look like bargains in retrospect. If the past is any indication, they probably will.

Alex Carchidi has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.