In the past two months, the S&P 500 and cryptocurrency have wiped out a total of -5.5 TRILLION dollars in market capitalization. We have just witnessed one of the most RANDOM shifts in sentiment since 2020. What is happening? Let us explain.

Let's start with a timeline: The market has been aware of the trade war since mid-2024. In December, tariff threats escalated, and we witnessed many all-time highs in the S&P 500 thereafter. Even after the trade war began on February 1, we saw MANY more all-time highs.

Since February 20, the S&P 500 has wiped out a staggering -4.5 TRILLION dollars in market capitalization. That’s about 350 billion dollars in market cap EVERY DAY over the past 13 consecutive days. Nasdaq is now just 8% away from entering a bear market for the first time since 2022. What has changed so quickly?

The trade war is just a scapegoat. The real reason behind the market decline is the sudden shift in risk appetite. We have moved from Extremely Greedy to Extremely Fearful in just a few days. Positioning has been so polarized that we have turned in the completely opposite direction.

What’s even more interesting is that institutional capital exited BEFORE tech stocks declined. By 2025, hedge funds' exposure to the Magnificent 7 stocks dropped to a 22-month low. Consider the divergence between Nasdaq and fund positioning.

On February 9, institutional investors built the LARGEST short position in Ethereum in history. This occurred as retail investors rushed into cryptocurrency hoping for the Strategic Reserve of the United States. Cryptocurrency has fallen by over 1 trillion dollars even as virtually ALL of Trump’s optimistic promises have come to fruition.

Crypto has further supported our argument: Consider all the bullish cryptocurrency developments that have occurred in the past two months. Even the US Bitcoin Reserve became a 'sell the news' event. So, what has changed? Clearly, the sudden shift in risk appetite.

In December 2024, optimism reached a level where Apollo announced their risks for 2025 with a 0% chance of a recession in the United States. Meanwhile, they see a 90% chance of tariffs being applied in 2025. The market has been aware of tariffs for months, the decline is NOT entirely due to tariffs.

The Fear & Greed Index in cryptocurrency and stocks hit its lowest level since the bear market of 2022 this month. Last year, cryptocurrency saw an extreme Greed level of 92+; now it's at the complete opposite with 17. Sentiment is the ultimate driver of prices in ANY market, regardless of the fundamentals.

When sentiment shifts too rapidly, outflows reach record highs and cause 'flash crashes' as we’ve seen. In the last week of February, cryptocurrency funds saw record outflows of 2.6 BILLION DOLLARS in one week. This figure is about 500 million dollars higher than the previous record set in 2024.

Last week, US small-cap funds saw outflows of 3.5 billion dollars, the highest since December 18. Mid-cap funds saw outflows of 2.1 billion dollars. Sector funds experienced outflows of 4.5 billion dollars, including 1.9 billion dollars solely from technology companies. Once again, a SHIFT in positioning.

This means that getting ahead of changes in sentiment will be the most profitable strategy in 2025. And as the Volatility Index, $VIX, surged over 70% in a month, the swings will widen. We expect to see swings over 1,000 points in the Dow becoming a regular occurrence.

Finally, movements in cryptocurrency and stocks are increasingly becoming one-sided. Red days are DEEP red days and vice versa, another sign that risk appetite is changing. Sentiment is the PRIMARY driver of price.