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The crypto market has seen a sharp drop in market capitalization since early February. According to recent data, total market capitalization has dropped by nearly 25%, equating to about $900 billion. Investors are becoming concerned about external factors such as economic and political conditions, leading to broad price adjustments.
What’s Behind the Crypto Market’s Struggles?
Key factors driving the crypto market decline include:
- Weak Investor Sentiment: Declining trading volume reflects a loss of enthusiasm for crypto assets, with investors becoming more cautious.
- Macroeconomic Concerns: Fears of a US recession and rising global trade tensions have increased uncertainty and negatively impacted market confidence.
- Global Economic Uncertainty: Rising inflation, interest rate hikes, and fears of a global economic slowdown have made investors more risk-averse.
- Lack of Strong Institutional Participation: The reduced presence of institutional investors has led to lower buying pressure, making it difficult for the market to maintain upward momentum.
Declining Trading Volume and Investor Sentiment
One of the key factors that analysts are worried about is the decline in trading volume. According to data from CoinGecko, trading volume has dropped sharply from its peak in February (at $440 billion) to $163 billion on March 12, which reflects the increasing caution among investors.
Analytics firm Santiment’s tweet on X on 13 March points out that:
- The drop in trading volume is a sign of waning investor enthusiasm.
- Despite small price recoveries, the lack of strong investor participation makes these recoveries unsustainable.
- Declining trading volume, coupled with slight price increases, can serve as an "early warning sign" of weakening market momentum.
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Crypto Fear & Greed Index and Market Sentiment
The Crypto Fear & Greed Index, which measures overall investor sentiment in the crypto market, remains in the "fear" zone below 50. This indicates that investors are still worried about the potential for price declines in the future and lack confidence in a strong recovery. Since February 21, this index has remained relatively unchanged, reflecting the uncertainty and caution among investors.
Crypto Market Forecast
Although the crypto market is facing many challenges, there are still signs that a recovery could be possible. Analysts believe that for a sustainable recovery, trading volume needs to start rising alongside price increases. If participation from both retail and institutional investors increases, the market could have a chance to recover strongly.
Santiment also points out that if both trading volume and prices rise simultaneously, the crypto market could become more stable and experience a sustainable recovery. However, this will take time and strong participation from investors.
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Akash Kashyap
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