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In today’s episode:

• ✍️ The Great Sentiment Shift

TOP STORY

The Great Sentiment Shift: What’s Really Happening in Crypto and Stocks?

Over the past two months, global markets have taken a nosedive, wiping out over $5.5 trillion in combined value from stocks and crypto. What started as an optimistic run to all-time highs quickly turned into one of the most dramatic sentiment shifts since 2020.

But why did the markets crash so suddenly?

Let’s break it down in simple terms.

A Timeline of the Decline

• December 2024: Markets were bullish. Crypto was riding high, and major financial institutions saw zero chance of a U.S. recession in 2025. Investors were feeling great.

• January 2025: More all-time highs for stocks, despite looming concerns about tariffs and trade wars.

• February 1, 2025: The U.S.-China trade war officially begins. Despite this, markets remained strong.

• February 9, 2025: Institutional investors built the largest Ethereum short position in history—a clear sign that the big players were bracing for impact.

• February 20, 2025: The S&P 500 starts to drop, losing $4.5 trillion in market cap in just 13 days. Crypto follows, erasing over $1 trillion in value.

• March 2025: The Nasdaq 100 is now down 12.4% in 13 trading days, getting dangerously close to bear market territory.

The REAL Reason for the Crash

While headlines blame the trade war, there’s something deeper at play: a sudden shift in risk appetite.

Institutional investors reduced exposure to tech stocks and crypto weeks before the crash. Hedge fund positioning in the “Magnificent 7” (Apple, Microsoft, Nvidia, Amazon, Google, Meta, Tesla) fell to its lowest level in 22 months just before prices tanked.

Crypto, which often serves as a leading indicator for market risk, also saw a huge shift:

• Retail investors piled into crypto, expecting a U.S. Strategic Reserve to support Bitcoin.

• Instead of rising, crypto collapsed by 35% from its peak, showing that the big players were already on the way out.

• Even bullish crypto developments—like the U.S. Bitcoin Reserve—became “sell the news” events.

Trump’s Interview: The Final Nail in the Coffin?

Then came the interview that shook the markets.

During a Sunday's Fox News appearance, President Trump acknowledged that a recession might be coming.

Key moments from the interview:

• When asked about the possibility of a recession, he replied, “I would hate to predict something like that.”

• He said the U.S. is “building the foundation for the future,” but that there would be short-term pain.

• He also told investors to stop watching the stock market.

Markets panicked. Stocks and crypto, which had already been fragile, collapsed further.

The Role of Liquidity & Fear

Another big factor? Liquidity dried up.

• Gold surged +9% since December while Bitcoin fell -23%.

• Crypto funds saw $2.6 billion in outflows in just one week—the biggest on record.

• Tech and small-cap stocks saw billions more in outflows, showing that money was rapidly moving out of riskier assets.

• The Fear & Greed Index, which hit Extreme Greed (92) in 2024, has now plunged to Extreme Fear (15)—its lowest since the 2022 bear market.

What’s Next?

This shift in sentiment means one thing: volatility is back.

• The VIX (Volatility Index) has surged 70% in just one month.

• Expect to see 1,000+ point swings in the Dow become a regular occurrence.

• Interest rate expectations have flipped from zero rate cuts in 2025 to a 50-50 chance of cuts starting in May.

What This Means for Crypto

• Crypto is now the #1 indicator of risk appetite. If investors remain fearful, crypto could see further declines.

• Institutional investors have exited, leaving retail traders to absorb the volatility.

• Liquidity remains tight, which means we could see faster and sharper price movements in both directions.

Bottom Line

This isn’t just a trade war problem. It’s not even just a Trump problem.

The real issue? A complete 180-degree shift in investor confidence.

Markets have swung from extreme greed to extreme fear in record time. And when sentiment changes this fast, outflows hit record highs, liquidity dries up, and prices drop—hard.

The key takeaway? Understanding market sentiment will be the most profitable strategy in 2025. Buckle up, because the ride is just getting started.

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.