Viewpoint: The real reason for the recent decline in U.S. stocks and cryptocurrencies is the sudden shift in risk appetite

ChainCatcher news, according to analysis by The Kobeissi Letter, the real reason for the market decline is the sudden shift in risk appetite. In just a few days, the market went from extreme greed to extreme fear. The positioning is so polarized that market sentiment has turned in the completely opposite direction. "Regardless of the fundamentals, sentiment is the ultimate driver of any market price."

When sentiment shifts rapidly, outflows can reach historic highs, triggering what we have seen as a "flash crash." Data shows that institutional capital exited before the decline in tech stocks. Heading into 2025, hedge fund holdings in the seven major U.S. stocks (Magnificent 7) will drop to the lowest level in 22 months.

In the last week of February, cryptocurrency funds recorded an outflow of $2.6 billion for the week. This is about $500 million higher than the record set in 2024.