The Crypto Market is Worsening as Bitcoin Engages with Risk-Off Sentiment and Altcoins Attempt to Rise

Faced with expanding geopolitical uncertainties, the cryptocurrency market is worsening this week, with Bitcoin closing near $88.28K after a 1.13% decline in the past 24 hours, while Ethereum has fallen more than 1.93%. The tight-knit team aligns with the broader market weakness, where Nasdaq 100 and S&P 500 futures are betting on material losses. This decline reflects growing risk aversion in global markets, with investors moving toward defensive assets like gold and silver, which have reached record highs. The deteriorating market sentiment can be linked to the first trilateral peace talks between Ukraine, Russia, and the U.S., where the desire for resolution seems unfounded.

The Derivative Market Shows Deep Weakness

The increasing pressure is particularly evident in the derivatives segment, where over $200 million in bets have been liquidated within just 24 hours, mostly long positions writing against sudden downside moves since the beginning of the week. Bitcoin’s 30-day implied volatility index (BVIV) has fluctuated, currently at 40%, indicating sustained interest in selling volatility through covered calls and other hedging strategies.

On Deribit, the dynamics are becoming more bearish for Ethereum, where short- and near-dated ETH put options are more expensive than BTC put options—a clear signal that traders are more cautious about the native Ethereum token. Ether is the only top 10 asset to see an increase in futures open interest in the past day, while BTC, XRP (down 1.87%), SOL, and others experienced capital outflows. Block flow data shows a preference for BTC straddles and ETH put spreads, reinforcing bearish positioning.

Altcoins Resist Broader Weakness but with Limited Liquidity

Amid the deteriorating market, the altcoin sector shows some signs of strength, albeit with drying liquidity. LayerZero’s ZRO token rallied last week due to hopes for a major upgrade in early February, but the latest data shows a -4.14% decline in the past 24 hours. TRX increased by 0.17%, while DASH fell 9.94%, highlighting the importance of selective betting in the altcoin space.

The “altcoin season” indicator rose to 29/100 from 24/100 last week, indicating some investor interest in diversification amid the broader market decline. However, the lack of liquidity continues to dominate the sector. For example, The Open Network (TON) has only 2% market depth for orders between $580,000 and $700,000 in a $3.7 billion market cap—meaning even small buy orders could cause significant price impact.

The CoinDesk 20 index has fallen 0.6% since midnight UTC, while memecoin, DeFi, and metaverse measures are all in the red. Currently, the metaverse sector leads year-to-date performance with 50% gains in the CoinDesk Metaverse Select Index (MTVS), driven by strong returns from Axie Infinity (AXS at $2.34) and The Sandbox (SAND at $0.12).

Pudgy Penguins and Broader IP Strategy Growing

Amid the deteriorating market, Pudgy Penguins stands out as one of the strongest NFT-native brands of the cycle, progressing from speculative digital luxury goods to a multi-vertical consumer IP platform. The strategy focuses on acquiring mainstream users first through toys and retail partnerships, then onboarding into Web3 via games, NFTs, and the PENGU token. The ecosystem includes phygital products (with over $13M in retail sales and 1M+ units sold), games like Pudgy Party (which surpassed 500k downloads in two weeks), and widespread token distribution with over 6M wallets receiving airdrops.

However, as metaverse opportunities emerge, XRP continues to be halted, down 1.87% this month despite on-chain data showing growing underlying investor interest. U.S.-listed spot XRP ETFs attracted a net inflow of $91.72 million this month, surpassing sustained outflows from Bitcoin ETFs.

Overall, deteriorating market conditions demand greater selectivity from traders and investors. While most momentum remains bearish, pockets of opportunity are emerging for those willing to navigate the complex landscape of liquidity constraints and geopolitical uncertainty.