Bitcoin crashed from its historical high of $124,500 to below $117,000, while Ethereum plummeted from $4,800 to $4,400, and the stock price of digital asset treasury companies saw significant losses. Just two days after hitting a new high, the market took a sharp turn downward. What is the market truly panicking about? The answer might not be as simple as it appears.
The trigger for this crash was the U.S. PPI data, with inflation reaching a three-year high, raising market concerns that the Federal Reserve might delay interest rate cuts. But upon closer examination, this logic doesn’t hold up. Cryptocurrency was originally a tool for hedging against inflation, and high inflation should theoretically be beneficial for Bitcoin. The real reason is that the market had risen too quickly and aggressively, necessitating the realization of profits, with the PPI data merely providing an excuse to sell.
From a technical perspective, this pullback is actually quite healthy. It is normal for Bitcoin to encounter profit-taking after breaking previous highs, especially after a rise from $100,000 to $124,000, with a short-term increase of over 20%. It would be strange if profit-takers didn't cash out. More importantly, although this drop was fierce, the trading volume was substantial, indicating real turnover has occurred. A large number of chips have shifted from short-term speculators to long-term holders, and this type of increase after sufficient turnover tends to be more sustainable. The $117,000 position is precisely in the previous dense trading area, providing strong support, making it likely to hold.
The performance of institutions is worth noting. Retail investors are panic selling, but ETF fund flows indicate that institutions are buying on dips. Particularly with the Ethereum ETF, even though prices have dropped significantly, the inflow of funds has only slightly slowed down, and there hasn’t been panic selling. What does this indicate? It shows that the truly smart money sees this pullback as an opportunity to increase their positions. They know that pullbacks in a bull market are a chance to make money, while only rebounds in a bear market are dangerous.
The stock price of digital asset treasury companies has dropped significantly more than the cryptocurrency prices, with MicroStrategy and Marathon Digital both falling over 10%. This overreaction has created opportunities. The core assets of these companies are Bitcoin, and with the coin price dropping 6% while the stock price has fallen over 10%, it is clearly oversold. Historical experience shows that when the stock price of treasury companies significantly discounts relative to coin prices, it is often an excellent buying opportunity. Smart investors have already started positioning themselves quietly.
The most interesting aspect is the market sentiment indicator. The Fear and Greed Index plummeted from 90 to 50, turning from extreme greed to neutral overnight. This drastic shift in sentiment indicates the market is still very young and easily swayed by emotions. However, from another perspective, when the market returns from excitement to rationality, it actually creates space for the next wave of upward movement. Historically, every time the Fear and Greed Index falls from a high to a neutral range, a new round of increases follows.