Crypto Market Plunges to $2.7 Trillion: Is a Local Bottom in Sight?

The crypto market experienced a significant downturn on Tuesday, with the total market capitalization dropping to $2.7 trillion, a decline of nearly $1 trillion from its peak in December 2024. However, several on-chain indicators suggest that this sell-off may have marked a local bottom.

Andre Dragosch, Research Director at Bitwise Europe, highlighted that the crypto asset sentiment index reached its lowest level since August, coinciding with the unwinding of the yen carry trade. This led Bitcoin to bottom out around $49,000 in August. The crypto asset sentiment index is now showing significant contrarian buy signals, indicating a potential turnaround in market sentiment.

The prevailing bearish sentiment in liquidity, on-chain data, and the derivatives market suggests that the downside risk is relatively limited at current price levels. This creates a favorable risk-reward outlook for investors, as the market may be poised for a rebound.