Bitcoin initiated a sharp decline on 25 February, causing a significant sell-off across the cryptocurrency market as it tumbled to $86.8k. This bearish movement resulted in a pessimistic market sentiment, with the fear index dropping to a five-month low categorized as ‘extreme fear’ at 25.
Data from CryptoQuant revealed that 37.4k BTC, valued at over $3.3 billion, were transferred to exchanges at a loss as short-term holders feared a possible further decline in the market.
Factors Behind the Crypto Market Sell-off
The overall risk aversion sentiment led to ETH and XRP plummeting by 10%, while BNB experienced a more moderate 4% decline.
Solana suffered the most significant blow, losing 12% of its value and struggling to maintain the $140-level at the time of publication. Coinglass data indicated that a total of $1.5 billion in positions ($1.38 billion from long positions) were liquidated within the last 24 hours.
There has been speculation among traders regarding the causes of the substantial sell-offs. QCP Capital, a crypto options trading desk, suggested that the market downturn was triggered by President Trump’s implementation of tariffs on Mexico and Canada.
“Market sentiment remains under pressure following Trump’s decision to implement tariffs on Canada and Mexico and curb Chinese investment.”
The trading desk also raised concerns about the potential limitations on institutional demand from companies like MicroStrategy in the future. This reduced demand has been evident since December of the previous year.
According to CryptoQuant, the noticeable decrease in BTC’s demand for the first time since October has intensified the downside risks for Bitcoin. Coupled with low liquidity conditions, this trend has accelerated the potential downside for BTC.
Some analysts, including Arthur Hayes, have projected that diminishing demand could drive BTC down to $70k due to a reduction in BTC CME basis yield. Hayes warned that major funds might start offloading BTC if the yield continues to decline.
While Bitcoin’s recent drop to $86k represented a 20% decrease from its all-time high of $109.5k, the overarching range had not yet been invalidated at the time of reporting.
It is crucial to note that a daily close of the candlestick below the range-low and the bullish order block (OB, cyan) would effectively signal the end of the neutral market structure that has persisted for the past three months.