Crypto Fear Index Hits Crisis Levels, Echoing the Collapse of Celsius, Terra, and 3AC

The Crypto Fear & Greed Index, a widely followed sentiment tracker in the cryptocurrency market, has dropped to its lowest level in more than two years. On February 26, the index sank to a score of 10, signifying “Extreme Fear” in the market. This sharp decline mirrors the levels seen during some of the most significant collapses in recent crypto history, such as the downfall of Three Arrows Capital (3AC), Terra (LUNC), and Celsius in 2022.

Bitcoin Dips Below $90,000: A Glimpse of Past Turmoil

On February 26, Bitcoin saw a sharp decline, dipping below $90,000 for the first time since November 2022. At press time, Bitcoin was trading at approximately $84,408, a drop of 17.32% over the past month. This recent downturn echoes the alarming market conditions of June 2022, when Bitcoin plummeted to $19,000 after losing 37% of its value in just 30 days. At that time, the market was reeling from the collapse of the TerraUSD (UST) stablecoin, which lost its peg to the US dollar in May 2022, leading to a massive $60 billion wipeout in the crypto ecosystem.

The Impact of Macroeconomic Uncertainty

While no significant crypto-related collapses preceded the February 26 sentiment plunge, macroeconomic factors have played a significant role in the downturn. The announcement of new tariffs by US President Donald Trump on February 25, including a 25% tariff on Canada, Mexico, and the European Union, sent shockwaves through global markets, further exacerbating the already volatile crypto environment.

The market sentiment was quickly transitioning from “Extreme Greed” on February 25 to “Extreme Fear” by February 26, marking a dramatic shift. This sudden change was partly fueled by the broader economic uncertainty and the failure of expectations surrounding the Trump administration's crypto agenda.

Analyst Insights: A Buying Opportunity?

Despite the prevailing pessimism in the market, some analysts see the current conditions as a potential buying opportunity for long-term crypto investors. Ben Simpson, founder of Collective Shift, pointed out that the strategy of buying during “Extreme Fear” and selling during “Extreme Greed” has historically been a profitable approach.

“Those who have followed this strategy over the years have outperformed both the market and most traders,” Simpson noted. He also highlighted that the current negative sentiment stems from unmet expectations regarding President Trump’s influence on crypto, with many hoping he would take strong action to support the industry.

Pav Hundal, lead analyst at Swyftx, echoed Simpson’s sentiments, acknowledging the harsh environment facing crypto investors right now. “The market is currently unforgiving, and it’s draining confidence,” Hundal said. However, he also pointed to rising global liquidity levels, a leading indicator for Bitcoin, and suggested that March could be a pivotal month for the market.

The Ripple Effect of 2022's Crypto Collapses

The collapse of Terra, 3AC, and Celsius in 2022 sent shockwaves through the crypto ecosystem. Terra's algorithmic stablecoin, UST, failed to maintain its peg to the US dollar, sparking widespread panic and a domino effect that led to the downfall of several major crypto entities. In June 2022, 3AC faced insolvency after failing to meet margin calls, which led to its liquidation later that month. Just weeks later, Celsius, one of the largest crypto lenders, paused withdrawals, eventually filing for bankruptcy in July.

The current market conditions have many investors drawing comparisons to those turbulent days of 2022. While no direct parallels exist with recent collapses, the general sentiment remains one of caution, with fears of further economic instability and uncertainty clouding the future.

The Road Ahead for Crypto

As the market teeters on the edge of uncertainty, analysts are closely watching for signs of stabilization. While the near term may continue to be rocky, the rising liquidity levels and historical patterns provide hope for a potential rebound. The coming weeks, particularly March, will be crucial in determining whether the market can recover from the current slump or whether the downward trend will continue.

In the midst of this volatile market, investors and market watchers alike are left pondering one question: Is this the beginning of another crypto winter, or is it simply a momentary dip in an otherwise promising long-term trend? Only time will tell.