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What is the real reason behind the crypto market crash?
In the past two months, global markets have experienced a massive crash due to a sharp shift in risk appetite, with the S&P 500 and cryptocurrency market capitalization evaporating more than $5.5 trillion. Although the trade war is seen as the trigger, what is the real reason?
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The trade war is just a scapegoat. The real reason for the market decline is the sudden shift in risk appetite. The market sentiment shifted from extreme greed to extreme fear, leading to a massive outflow of funds.
The movement in cryptocurrencies and stocks is becoming increasingly one-sided. Down days are deep red and vice versa, another sign of changing risk appetite. Sentiment is the ultimate driver of price.
The Fear and Greed Index for cryptocurrencies and stocks has fallen this month to its lowest point since the 2022 bear market. Last year, the Greed Index for cryptocurrencies was above 92; now it is down to the exact opposite at 17. I believe that sentiment is the ultimate driver of price in any market, regardless of fundamentals.
When Trump took office, it was like a single rotten apple spoiling the whole barrel. His influence sent shockwaves through the market, disrupting the momentum and shaking investor confidence, ultimately accelerating the downturn.
The crypto market is far from perfect, and its cycles often follow a predictable pattern of boom and bust. As VC-backed tokens start to decline, so-called "value tokens" frequently become mere exit strategies for project teams, venture capitalists, and market makers. This process typically unfolds in three stages during market turbulence: rushing to establish a foundation, launching an airdrop plan, and dumping tokens after exchange listings. The constant fluctuation between value and price, as well as the ongoing battle over interests and distribution, creates a vicious cycle that repeats in every market phase. Ultimately, retail investors bear the brunt of these market dynamics, turning their participation into a painful lesson of blood and tears.
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