The Extremity Premium: Sentiment Regimes and Adverse Selection in Cryptocurrency Markets

Abstract Using the Crypto Fear & Greed Index and Bitcoin daily data (Feb 2018–Jan 2026, N=2,896), we document that sentiment extremity predicts excess uncertainty beyond realized volatility. Extreme fear and extreme greed regimes exhibit significantly higher spreads than neutral periods—the “extremity premium.” Key Findings Extremity premium confirmed: Within-volatility-quintile Cohen's d = 0.21, pooled d = 0.40 (p < 0.001) Strong Granger causality: Uncertainty → spreads (F = 211) Cross-asset replication: Effect replicates on Ethereum and across 6/7 market cycles ABM reproduces pattern: Agent-based model qualitatively matches empirical findings Intensity over direction: How extreme the sentiment is matters more than whether it's fear or greed Status With Editor at Computational Economics (Springer). Working Paper DAI-2510. Links ASCRI: systems.ac/3/DAI-2510 Research Lab: Dissensus AI