Extreme Fear Hits Crypto: Market Cap Plunges 14% Following Trump's Decision
Cryptocurrency markets slid deeper into risk-off territory this week as sentiment deteriorated sharply following a macro-driven liquidity shock. The Crypto Fear and Greed Index dropped to 15 — its lowest level since November 2025 — while total crypto market capitalization fell roughly 14% in a week, underscoring the sector’s sensitivity to shifting monetary expectations.
The combined value of digital assets declined from about $3.04 trillion last week to approximately $2.66 trillion, erasing hundreds of billions in notional value. The drawdown coincided with accelerating capital outflows from crypto-linked investment products, with crypto exchange-traded funds recording net redemptions of around $762 million over the period.
Powered by Outset PR, this analysis reflects the agency’s commitment to strategic, data-backed communication for the crypto industry.
Macro Shock Triggers Liquidity Concerns
The selloff was triggered primarily by a renewed macro liquidity scare after US President Donald Trump nominated Kevin Warsh as the next Chair of the Federal Reserve. The announcement was interpreted by markets as signaling a potential return to a more hawkish monetary stance, reviving concerns over tighter financial conditions and reduced systemic liquidity.
Warsh, a former Fed governor, has previously argued for stricter monetary discipline, and his nomination introduced a hawkish bias into rate expectations. As a result, investors moved quickly to reduce exposure to speculative and duration-sensitive assets, including cryptocurrencies.
Crypto Trades Like a Rates-Sensitive Asset
The reaction highlights crypto’s evolving role in global markets. Rather than behaving as a hedge, digital assets once again traded as high-beta risk instruments, closely tracking shifts in liquidity expectations and interest rate outlooks.
When markets anticipate tighter monetary policy, capital typically rotates out of assets reliant on abundant liquidity and into cash or yield-bearing instruments. Crypto, which remains highly dependent on leverage and speculative participation, has been particularly vulnerable during such transitions.
ETF outflows reinforced the move. Since their launch, spot crypto ETFs have become an important conduit for institutional exposure. Sustained redemptions reduce spot demand and remove a stabilizing source of liquidity, amplifying downside moves during periods of stress.
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Outlook Hinges on Liquidity Signals
For now, crypto markets remain tightly linked to macro developments. Until clarity emerges around the future direction of US monetary policy and broader liquidity conditions, price action is likely to remain volatile and defensive.
Stabilization would require not only a slowdown in outflows and deleveraging, but also signs that liquidity risks are easing. Without those signals, crypto’s role as a rate-sensitive risk asset leaves it exposed to further downside as investors continue to prioritize capital preservation over speculation.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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