Crypto Sentiment Hits Rock Bottom as Fear and Greed Indexes Flash 'Extreme Fear'

Crypto market sentiment has reached its lowest level since the FTX collapse, with the Crypto Fear and Greed Index hitting a reading of 9, categorized as 'extreme fear.' The decline in sentiment followed a sharp drop in Bitcoin prices, which briefly fell to $60,000 before recovering to around $65,000 according to CoinDesk. The index, which tracks volatility, momentum, social media activity, and other factors, has moved quickly from cautious to highly defensive positioning, reflecting widespread panic across the market.

Bitcoin's recent volatility has led to a wave of deleveraging, with spot and futures ETFs experiencing significant outflows. On February 5, Bitcoin ETFs recorded $434.1 million in net outflows, led by BlackRock's IBIT. This reflects growing caution among institutional investors amid the heightened market stress.

The fear-based behavior is also evident in reduced open interest across major crypto derivatives. Bitcoin's futures open interest fell to $48.53 billion from $50.5 billion in a single day, signaling a decline in retail and institutional participation.

What Caused the Market to Turn?

The sudden shift in sentiment came after Bitcoin briefly dipped below $65,000, triggering forced liquidations across the board. This came amid a broader bearish pullback following a sharp rise in February 2026.

Historical patterns suggest that extreme fear readings often coincide with local market bottoms, as panic flushes out leveraged traders and short-term holders. However, this is not a guaranteed rule, and the index is better viewed as a reflection of market stress rather than a predictive tool.

The collapse in sentiment was further amplified by renewed concerns over the broader economic landscape. Bitcoin's drop in early February was exacerbated by fears of a larger crypto apocalypse, with top economist Nouriel Roubini warning that most cryptocurrencies are not truly decentralized.

How Are Markets Responding to the Fear?

Bitcoin has shown limited resilience in the face of extreme fear, with prices bouncing back above $70,000 in recent days but failing to hold that level with conviction. The market remains in a "sell first, ask questions later" mode.

The broader crypto market has followed a similar pattern, with altcoins like Ethereum and XRP also declining amid the risk-off environment. Ethereum's futures open interest dropped to $25.6 billion from $26.3 billion, reflecting a shrinking pool of retail demand.

The impact of fear is not limited to retail investors. Institutional players are also cautious, with companies like Strategy reporting expected losses amid Bitcoin's volatility. Strategy's Bitcoin treasury model has come under scrutiny as the price of Bitcoin falls below the value of its stock, reducing the company's ability to raise capital without diluting shareholders.

South Korean regulators are also stepping up their oversight in response to the recent volatility. The country's Financial Supervisory Service (FSS) is reviewing unusual price swings in the ZKsync token and expanding its AI-driven surveillance tools to detect market manipulation.

What Are Analysts Watching Next?

Market participants are closely watching whether the current fear-driven environment will give way to a reversal. While historical data suggests that extreme fear readings can coincide with turning points, the timing of such a reversal is uncertain.

Bitcoin's technical indicators remain bearish. The 30-day correlation with the S&P 500 has dropped to around 15%, suggesting the crypto market is no longer moving in tandem with traditional equities. Additionally, Bitcoin's RSI stands at 21 on the daily chart, signaling strong bearish momentum.

Regulators are also watching for signs of manipulation in the wake of the recent volatility. South Korea's recent enforcement actions, including the first prison sentence under the Virtual Asset User Protection Act, indicate a more proactive approach to market oversight.

Investors are also monitoring the broader macroeconomic environment, particularly as the U.S. tech sector faces its own corrections. The S&P 500 and Nasdaq ended sharply lower as investors grew wary of heavy AI spending by tech giants.

Institutional investors are looking to the next quarter's earnings reports for more clarity. Strategy's Q4 earnings report on February 5 will be closely watched for insights into the sustainability of its Bitcoin accumulation strategy amid a declining price environment.

The broader market remains highly sensitive to even minor price shifts, with many participants adopting a defensive stance. While occasional rebounds occur, the overall trend remains bearish, with the fear gauge signaling a market in distress rather than one ready for a turnaround.