120 Billion Evaporates in Extreme Panic: Crypto Market Sentiment Hits Bottom, Macro Risks Spark the Fuse

The cryptocurrency market experienced a sharp collapse in sentiment on January 21. The Fear and Greed Index dropped to 24, officially entering the “Extreme Fear” zone, marking a rapid reversal after last week’s brief rebound to the “Greed” area. Under intense selling pressure, the total market capitalization of cryptocurrencies evaporated by over $120 billion within 24 hours, with Bitcoin briefly falling below $90,000 and dropping to $88,000, while Ethereum also lost the $3,000 support level. This collapse not only reflects the fragility of market sentiment but also exposes the deep impact of macro risks on crypto assets.

Why Did the Sentiment Indicator Drop to Extreme Fear?

The Fear and Greed Index is a comprehensive measure of market sentiment, integrating data such as price volatility, trading volume, market momentum, social media activity, Bitcoin market share, and Google Trends. The index ranges from 0 to 100, with 0-25 defined as “Extreme Fear” and 75-100 as “Extreme Greed.”

A reading of 24 indicates that investors’ risk-averse mentality has reached an extreme level. This is reflected not only in price declines but also in social media activity, trading behaviors, and capital flows shifting across the board. According to the latest reports, investor interest in crypto assets has shifted from panic to apathy, with some long-term participants even transferring funds to stocks and commodities. This suggests not just a short-term technical correction but a loss of confidence.

How Do Macro Risks Trigger Chain Reactions?

The trigger for this sentiment collapse is the worsening global macro environment. Recently, Trump reiterated threats of tariffs on the EU, and U.S. Treasury Secretary Scott Bessent confirmed at the Davos Forum that tariffs will continue to be used as a geopolitical tool. This statement triggered a collective correction in global risk assets.

The transmission path of macro risks to the crypto market is clear:

• Tariff threats and geopolitical uncertainty dampen global risk appetite
• Investors shift from risk assets to safe-haven assets
• Cryptocurrencies, as high-risk assets, are the first to be affected
• Leveraged funds are forced to liquidate during the decline, further accelerating the fall

Volatility in the Derivatives Market

The derivatives market has shown even more extreme reactions. Over the past day, more than 182,000 traders faced forced liquidations, totaling $1.08 billion. Long positions alone lost nearly $990 million, indicating that leveraged longs were rapidly wiped out during the decline.

This mass liquidation further intensifies the downward momentum, creating a negative feedback loop: price drops → triggers liquidations → further declines → more liquidations. For investors involved in leveraged trading, this is a rapid evaporation of capital.

Divergence in Investor Psychology

A clear psychological divide has emerged in the market. Analyst Rex pointed out that investor interest in crypto assets has shifted from panic to apathy, which may be more dangerous than panic because it signifies a genuine outflow of funds.

However, another analyst, Doc, holds a different view. He believes that although the current sentiment may be worse than during the FTX collapse, Bitcoin still possesses significant asymmetric return potential. Once a bottom is reached and a rebound occurs, it could still become one of the most attractive risk assets in the capital markets.

These two perspectives reflect the core contradiction in the market: the tension between short-term extreme panic and the long-term attractiveness of the asset’s fundamental properties.

Complex Situation Under the Macro Policy Environment

Interestingly, Bessent conveyed two seemingly contradictory signals at the Davos Forum. On one hand, his threats of tariffs created market panic; on the other hand, he confirmed multiple times that the U.S. government will promote a “Strategic Bitcoin Reserve” plan and define Bitcoin as a “store of value” asset.

This reflects a shift in policy perception of crypto assets, but in the short term, the market is still digesting the shocks from tariffs and geopolitical risks. The long-term positive policy signals are currently being overlooked.

Uncertainty About Future Trends

Until the geopolitical and macro policy directions become clearer, volatility in the crypto market is expected to remain high, with panic sentiment likely dominating short-term trading behavior. Key points to watch include:

• Whether tariff policies will be implemented and escalated
• Whether geopolitical tensions will worsen further
• The Federal Reserve’s policy trajectory and its support for risk assets
• Whether institutional investors will enter at the bottom

Summary

The $120 billion evaporation is essentially a dual effect of macro risks and market sentiment. The drop in the Fear and Greed Index to 24 reflects a severe loss of investor confidence, not just a technical price correction. The large-scale liquidations in derivatives markets further reinforce this panic.

However, it is worth noting that extreme panic often breeds opportunities. In the context of positive policy signals (such as government promotion of a strategic Bitcoin reserve) and market sentiment reaching extremes, a bottom may be forming. The key is to patiently wait for macro risks to clarify and for further policy confirmation. Short-term panic does not necessarily mean a long-term bear market, provided the macro environment does not continue to deteriorate.