Crypto market sentiment plunges into 'extreme fear'

The cryptocurrency market is currently experiencing a significant downturn in sentiment, as reflected by the Crypto Fear Greed Index.

On February 26, 2025, the index plummeted, reaching a low of 10, signaling "Extreme Fear" in the market.

This level has not been observed since June 2022, a period marked by the collapse of major crypto entities like Terra (CRYPTO:LUNA), Celsius Network (CRYPTO:CEL), and the initial downfall of Three Arrows Capital (CRYPTO:3AC).

The sharp decline in the index reflects a broader market sell-off, with the overall crypto market capitalisation dropping by 10%.

Bitcoin (CRYPTO:BTC) has fallen below $90,000 for the first time since August 2024.

Other major cryptocurrencies, such as Solana (CRYPTO:SOL) and XRP (CRYPTO:XRP), have also experienced significant drops, falling more than 14%.  

This shift has been described as one of the steepest declines since September 2024.

Several factors contribute to the current market sentiment.

There has been a notable outflow of over $1 billion from Bitcoin ETFs in the last two weeks.

Some analysts attribute the downturn to a general lack of catalysts to sustain the market's upward momentum following Trump's election.

President Trump's plans to impose tariffs on Canada, Mexico, and the European Union have added to macroeconomic uncertainty.

The Fear and Greed Index is a market indicator that uses social media posts, volatility, trends, and prices to gauge trader sentiment.

It operates on a scale of 0 to 100, where a low score indicates fear and a high score signals greed.

The drop to 10 indicates that fear is taking over.

Despite the current negative sentiment, some analysts suggest the situation could present a buying opportunity.

Historically, periods of extreme fear have been followed by market recoveries.

The market awaits potential catalysts, such as improved U.S. economic data, which could prompt central banks to recharge the economy and fuel a rally.

The current circumstances bear resemblance to the market conditions of June 2022, when the index fell as Bitcoin tumbled to $19,000.

That period was largely influenced by the collapse of the TerraUSD (CRYPTO:UST) stablecoin, which lost its peg to the U.S. dollar, triggering panic selling and wiping out a combined $60 billion from the crypto ecosystem.