Is total pessimism a buy? Bitcoin's sudden drop and the future of market sentiment

A general atmosphere of pessimism pervades the Bitcoin market. Since October 10, Bitcoin prices have plummeted by approximately 40%, spreading a mood of resignation across the market. Let's explore investor sentiment and the underlying market trends.

Since mid-October, Bitcoin has already begun to show signs of entering a bear market. Its value has plummeted from its year-to-date high of approximately $126,000 to a current level of around $87,000. On November 20, NVIDIA, a symbol of the AI ​​boom, announced strong earnings results. Investor sentiment improved somewhat, boosted by expectations of a delay in tariff policy. Indeed, once NVIDIA's strong earnings outlook was announced, Bitcoin, along with tech stocks, bottomed out and even showed a slight recovery from the lows.

However, the following day, the 21st, investors' risk aversion intensified, leading to a decline in a wide range of investment products, including stocks and cryptocurrencies. The Fear & Greed Index also fell to 15, its lowest level since April of this year, reaching the so-called "extreme fear" zone. It can be said that many market participants were leaning toward "total pessimism."

The spread of optimism in the U.S. stock market led to a decline in the Volatility Index (VIX) of stock index futures, which likely contributed to a easing of excessive anxiety in the cryptocurrency market. However, uncertainty remains about the timing of interest rate cuts, and this rebound has yet to translate into a strong upward trend.

Behind Bitcoin's sudden drop, mid-term holders and individual investors emerged as sellers. According to an analysis by major asset management firm VanEck, it was "mid-cycle holders" who led the selling pressure during this correction, while long-term whales (large investors) continue to hold crypto assets.

The volume of crypto assets that have been dormant for more than five years is steadily increasing, with recent selling concentrated among investors with medium holding periods. In other words, it's likely that late entrants and short-term investors were the ones selling off during the bear market.

On-chain data and ETF market activity support this trend. The sharp decline in cryptocurrency prices has led to a flurry of outflows from cryptocurrency exchange-traded funds (ETFs). Over the past week, more than $1.8 billion was reported to have flowed out of cryptocurrency-related ETFs, with approximately $870 million of that coming from Bitcoin spot ETFs.

Major ETFs, such as BlackRock's Bitcoin Spot ETF (IBIT) and Fidelity's FBTC, have also seen a decline in assets under management. One analysis suggests that this massive redemption is due to short-term investors who purchased Bitcoin spot ETFs at peak prices rushing to sell off their holdings during the recent selloff.