The cryptocurrency market experienced heightened volatility last week as investor sentiment soured following the largest exchange hack in history. The breach at ByBit, which saw approximately $1.4 billion worth of Ethereum (ETH) stolen, sent shockwaves across the digital asset ecosystem, triggering widespread risk-off behavior and amplifying existing market pressures.
Compounding the sell-off was the unwinding of basis “carry trades,” a popular market-neutral strategy where traders short futures contracts while holding the underlying spot asset to capture the yield spread, known as the basis rate. With the annualized 3-month Bitcoin basis rate declining from 16.3% in late 2024 to just 6.7%, the profitability of these trades diminished, prompting traders to liquidate positions and exacerbating downward price pressure.
Despite the negative performance across most cryptoassets, significant intraday volatility emerged—Ethereum, for instance, briefly plunged 27.6% from its all-time highs, technically entering bear market territory. Yet, this turbulence also laid the groundwork for potential reversal signals, suggesting that bearish sentiment may be nearing a peak.
Cryptoasset Sentiment Index Signals Neutral Outlook
Our proprietary Cryptoasset Sentiment Index now reflects a neutral stance after flashing contrarian buying signals earlier in the week. Seven out of fifteen tracked indicators are currently above their short-term moving averages, signaling a tentative shift in momentum.
The Crypto Fear & Greed Index remains in “Fear” territory, underscoring persistent caution among retail investors. However, key metrics are beginning to stabilize. The Altseason Index and Crypto Hedge Fund Beta have reversed course, while Bitcoin exchange inflows show a slight uptick—often a precursor to accumulation.
👉 Discover how market sentiment shifts can reveal hidden opportunities in volatile markets.
Bearish Sentiment Reaches Multi-Year Highs
Notably, crypto pessimism coincided with record bearish readings in traditional markets. The AAII U.S. Equity Retail Survey recorded its highest level of investor bearishness since 2022, highlighting a broad-based risk-averse environment. This confluence across asset classes often precedes contrarian turning points, as extreme negativity tends to wash out weak hands and set the stage for recovery.
While altcoin performance dispersion improved slightly—55% of tracked altcoins outperformed Bitcoin—Ethereum notably underperformed, reflecting specific concerns around staking yields and post-hack uncertainty. Still, assets like Cardano (ADA), Hedera (HBAR), and XRP emerged as relative outperformers, indicating selective strength within the ecosystem.
Fund Flows Reflect Panic, But May Signal Opportunity
Global crypto ETPs recorded staggering net outflows of -$2.997 billion** last week, more than quintupling the prior week’s -$596.5 million. The bulk came from U.S. spot Bitcoin ETFs, which shed -$2.618 billion**, including **-$1.174 billion from BlackRock’s iShares Bitcoin Trust (IBIT) and -$188.8 million** from Grayscale’s GBTC.
Ethereum ETPs also faced outflows, with U.S.-listed spot ETFs losing -$335.4 million** and Grayscale’s ETHE down **-$77.1 million. The Bitwise Ethereum ETF (ETHW) saw minor outflows of -$20.7 million**, though European staking-focused products like ET32 attracted **+$13.5 million, suggesting continued demand for yield-bearing instruments.
Despite the red ink, these outflows may reflect forced selling rather than structural rejection. Historically, such extreme net outflows coincide with market bottoms. With expectations for stronger ETF inflows in 2025—driven by institutional adoption and macro tailwinds—the current weakness could pave the way for future gains.
On-Chain Data: Supply Tightens Amid Demand Slump
Bitcoin’s on-chain dynamics present a mixed picture. Exchange reserves continue to decline, with only 2.706 million BTC (13.6% of circulating supply) remaining on exchanges—the lowest since November 2018. This structural supply deficit supports long-term bullish narratives.
However, short-term indicators are less encouraging. Whale wallets (holding 1,000+ BTC) transferred +6,943 BTC to exchanges, signaling elevated selling pressure. Net spot exchange volume reflected -$2.02 billion in net selling, while the 30-day “apparent demand” metric turned negative for the first time since October 2024—suggesting waning immediate buying interest.
Futures and Options: Volatility Spikes Amid Sentiment Shifts
BTC futures open interest dropped by -30k BTC, while perpetual contracts fell by -2k BTC, indicating deleveraging. Short liquidations spiked on Sunday—the highest since December—often a sign of capitulation.
Funding rates turned positive throughout the week after briefly dipping negative, reflecting stabilizing trader sentiment. Meanwhile, BTC option implied volatility rose to 53.9% for 1-month at-the-money contracts, with the put-call ratio and 25-delta skew spiking before moderating into the weekend—indicating temporary bearish hedging that has since subsided.
Catalysts Driving the Recent Rebound
Two major catalysts sparked a sharp recovery late in the week:
- BlackRock’s Strategic Bitcoin Allocation: The asset giant announced it would include Bitcoin in its model portfolios, potentially allocating 1–2% across multi-asset strategies—a move that could unlock billions in institutional capital.
- Trump’s “U.S. Crypto Reserve” Proposal: Former President Donald Trump declared plans for a national reserve holding the top five non-stablecoin cryptos—BTC, ETH, XRP, SOL, ADA—on Truth Social. The announcement sent prices soaring, with Bitcoin gaining nearly +10% in a single day.
As a result, Polymarket’s odds of a U.S. national Bitcoin reserve by 2025 surged to 62%, reflecting growing political momentum.
👉 See how macro-level developments can rapidly reshape crypto market dynamics.
FAQ: Understanding the Current Market Landscape
Q: What triggered the recent crypto market sell-off?
A: The sell-off was primarily driven by the ByBit hack ($1.4B in ETH stolen) and the unwinding of unprofitable basis carry trades as futures contango compressed.
Q: Is extreme bearish sentiment a buying opportunity?
A: Historically, extreme bearish readings—especially when aligned across crypto and equities—have preceded market rebounds. Current sentiment levels suggest potential contrarian upside.
Q: Why are ETF outflows so high despite long-term bullish trends?
A: Outflows often reflect short-term panic or forced liquidations rather than long-term conviction shifts. Structural demand from institutions and upcoming policy catalysts support future inflows.
Q: What does declining exchange supply mean for Bitcoin?
A: Lower exchange balances reduce immediate sell-side pressure and signal strong holder conviction—historically bullish for price stability and long-term appreciation.
Q: How reliable are sentiment indicators like the Fear & Greed Index?
A: While not predictive on their own, extreme readings serve as contrarian signals when combined with on-chain and flow data.
Q: Could political support boost crypto adoption in 2025?
A: Yes—Trump’s “U.S. Crypto Reserve” proposal and BlackRock’s inclusion of Bitcoin in model portfolios indicate growing mainstream and institutional legitimacy.
Final Outlook: Volatility Masks Opportunity
While last week’s performance was dominated by fear and outflows, deeper analysis reveals signs of stabilization. Sentiment has moved from extreme fear toward neutrality, on-chain supply continues to tighten, and powerful catalysts—from institutional adoption to political tailwinds—are gaining traction.
The upcoming White House “Crypto Summit” on March 7 could further clarify regulatory and policy directions, potentially reigniting investor confidence.
👉 Stay ahead of market shifts with real-time data and actionable insights.
For investors focused on long-term fundamentals, periods of intense volatility—fueled by hacks, liquidations, and sentiment extremes—often present strategic entry points before broader recovery unfolds.