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- The crypto market cap dropped by $100 billion, briefly recovered but retraced, raising investor concerns.
- Trump’s US Crypto Reserve news boosted the market briefly, then quickly dropped within 24 hours.
- Investor sentiment shifted from fear to greed, then back to fear, with analysts calling it a ‘bull trap.’
Crypto markets have somewhat suffered certain losses, with over $100 billion in value evaporating in the aftermath of the US Crypto Reserve. The market cap has risen a bit after the announcement but quickly retraced the gains, and this has led to some concern from investors.
In a series of X posts, The Kobeissi Letter revealed that over the weekend Donald Trump assures his supporters of the foundation of the new financial instrument – US Crypto Reserve. The news positively affected the market at first, pushing it up to $3.1 trillion from $2.7 trillion in the evening. However, the increased growth was short-lived and within the next 24 hours the value fell to $2.6 trillion.
Ethereum Stablecoin also followed similar oscillations in its value. Before the announcement, its price was tested at $2,173. After the Reserve news, it raised to $2,550 then dropped down to $2,002 which portrayed a sharp decline. This sharp decline has raised concern on the sustainability of the bullish run of the market.
The volatility affected the investor more than any other group, especially the retail investors. The Crypto Fear & Greed Index rose from the level of fear (20) to greed level (55), and then went back to the fear level of 24. This change in sentiment has caused many analysts to refer to the recent rally as a ‘bull trap’, whereby investors have lost faith in the markets in the near term.
Source: The Kobeissi Letter
Crypto Market Sees Record Outflows
Besides the fluctuations in the prices of different cryptocurrencies, there was a great sell-off that took place towards the end of the second month of the year. Cryptocurrencies experienced the highest weekly outflow of $2.6 billion during the week that ended February 28. This means that investors are pulling out from crypto assets even after the Reserve announcement and marks $500 million higher than the previous record of 2024.
Source: The Kobeissi Letter
Bitcoin (BTC) also faced difficulties. The Bitcoin dropped further by 3% below the levels that was before the announcement of the establishment of the Reserve. This came as a shock to many especially in the last 12 hours where Bitcoin wiped $250 billion of market cap. This decline reflects increasing volatility in the market profile which is evident from the current observation of the drop.
The main cause for the reduction in demand is that investors shifted away from risky investments. The increase in economic policy uncertainty and trade tensions have made investors seek safer investments. For instance, Gold has appreciated by 10% this year while Bitcoin has depreciated by 10%. Respondents no longer use crypto as a method of protecting themselves from market fluctuations.
Survey Reveals Market Concerns
Another survey was conducted by the financial giant – Bank of America, and it also indicated changes in sentiment. Thus, in the latest survey, as much as 42% of respondents identified the global trade war as the biggest threat to risk assets, while in January there were only 15%. However, only 3 % of the respondents have confidence that Bitcoin will thrive in a full blown trade war, thus lagging behind the US dollar and gold.
Source: The Kobeissi Letter
With this new volatility that crypto seems to be experiencing, the haven days of the market are seem to be over. Market volatilities are expected to remain high throughout the year, as the road forward for digital assets remains unknown.
