The Psychology of Volatility: How Fear and Greed Indexes Signal Turning Points in the Crypto Market

Fear and Greed Index: The Key to Understanding Market Sentiment

The cryptocurrency market is driven by emotions—this is a well-known secret. The most accurate tool to measure this sentiment is the Fear and Greed Index, which quantifies the market’s psychological state on a scale from 0 to 100: 0 represents extreme fear, and 100 represents extreme greed.

This index analyzes multiple dimensions such as volatility, trading volume, social media activity, and market momentum to provide traders with a crucial reference—whether the market is in overbought or oversold conditions. In simple terms, it is a thermometer of the collective psychology of market participants.

24-Hour Rollercoaster: From Greed to Fear

Recent events have been impressive. The Fear and Greed Index dropped from 64 (greed zone) to 27 (fear zone) within 24 hours, representing not just a numerical change but a complete reversal of market sentiment.

What triggered this flip? A macroeconomic news—The U.S. government announced plans to impose a 100% tariff on Chinese goods. This news hit like a bombshell on calm waters, triggering a chain reaction across global financial markets, with the cryptocurrency market bearing the brunt.

Numbers Speak: The Largest Liquidation Storm on Record

When market sentiment collapses, leveraged traders are the first casualties. This liquidation event set a record—over $19.3 billion in contract positions were forcibly liquidated, with some analysts estimating the actual figure could reach $30 billion.

The hardest hit were long positions, with losses totaling $16.83 billion, while short sellers fared relatively better, losing only $2.49 billion.

Overview of Liquidations by Currency

• Bitcoin (BTC): $5.38 billion
• Ethereum (ETH): $4.43 billion
• Solana (SOL): $2.01 billion
• XRP: $708 million

Behind these figures are millions of traders’ stop-loss orders triggered, causing the market to plunge into panic selling instantly.

Price Plunge: Mainstream Coins in “Free Fall”

The liquidation triggered a massive price crash:

Bitcoin (BTC) plummeted from its high, currently hovering around $96.55K, with a 24-hour decline of -1.28%. At the peak of the event, it even touched near $102K.

Ethereum (ETH) performed worse, dropping from $4,783 to $3.32K, with a 24-hour decline of -1.81%, and at times approaching $3,400.

Solana (SOL) fell 2.97% in 24 hours, and XRP dropped even more, by -3.64%.

The entire crypto market cap evaporated by about $1 trillion within 3 hours, with a global market cap decline of over 9%. This was a true bloodbath.

Real Reactions of Market Participants: Divergence and Play

Interestingly, during this storm, the behaviors of different participants showed dramatic divergence—

Retail investors bottom-fishing

On-chain data shows that small investors holding 1-1000 BTC actively bought during the peak of fear. This phenomenon is quite interesting—it suggests that some market participants see current prices as a long-term buying opportunity, demonstrating confidence in Bitcoin’s prospects. This is often a sign of market bottoms.

Miners fleeing

In contrast, miners moved 51,000 BTC to exchanges, a behavior often indicating plans to sell or at least cash out. Miners are usually very sensitive to market movements, and their outflows could mean short-term selling pressure remains.

This creates an intriguing tension: retail investors are accumulating at the bottom, while miners might be trying to top out. The market’s complexity is evident here.

Large institutions buying the dip

Amidst the chaos, a hidden hand stabilizes the situation—institutional investors. They seem to quietly absorb the sell-off, keeping Bitcoin’s price around $110K. This move indicates that when retail investors panic and exit, institutions are accumulating at low prices. From this perspective, their involvement could be the key catalyst for a market rebound.

Historical Benchmark: October’s Curse and Redemption

Looking back, October has generally been friendly to Bitcoin—historical average gain of 20.10%. But this October seems to be breaking that curse.

However, comparing past market crises—such as the March 2020 crash caused by COVID-19 and the 2022 liquidation wave triggered by FTX’s collapse—there is a pattern worth noting: the crypto market tends to rebound strongly after each major dip. The market’s resilience is stronger than many think.

Key Support and Resistance Levels: What’s Next?

For traders, these price levels are critical:

Bitcoin (BTC)’s support levels are at $100K and $95K, with rebound targets at $115K and $120K.

Ethereum (ETH) needs to hold the $3,200 support, with resistance at $3,800.

These levels will determine whether the market continues downward or begins to rebound.

From Panic to Accumulation: The Cycle Shift

Although current sentiment indicators show the market in fear, from multiple dimensions, the market may be transitioning from panic to accumulation—often the starting point of many bull cycles in history.

If this pattern continues, this “fearful time” could instead mark the beginning of the next rally in Q4 of next year.

Conclusion: Fear Is Another Name for Opportunity

The importance of the Fear and Greed Index lies not only in measuring market sentiment but also in reminding us—extremes often signal turning points. When the index plunges from greed into fear rapidly, it tests traders’ psychological resilience and decision-making skills.

By analyzing on-chain data, studying market participant behavior, and comparing historical patterns, we can better understand the true supply and demand conditions of the market—rather than being misled by surface-level panic. In the cyclical fluctuations of cryptocurrencies, the real winners are often those who remain rational amid fear.