A crypto crash that has cost investors billions of dollars is happening, with popular names like Uniswap, World Liberty Financial (WLFI), and Pepe (PEPE) falling by double digits from their highest levels this year. 

Uniswap price has plunged by 21% from its highest level this week, while WLFI has pared back some of the recent gains and fell by 15% from this week’s high. Pepe Coin price has plunged by about 65% from its highest level this year. The Bitcoin price has also dropped to nearly $100,000.

Crypto crash triggered by fear in the market

The primary reason why the crypto crash is happening is that investors are still fearful in the market. The closely-watched Crypto Fear and Greed Index has dropped to 25, a sign that it may move to the extreme fear zone soon. 

Crypto Fear and Greed Index has fallen | Source: CMC

This is an important number that looks at the sentiment among traders in the crypto industry. It looks at the momentum in terms of prices, social media activity, performance in the derivatives market, and market composition among others.

The index was inspired by a similar gauge that was created by CNN Money many years ago. This index largely focuses on the stock market and looks at things like the stock breadth, strength, put and call options, volatility, and safe-haven demand. Even this index has moved to the fear zone of 34.

Cryptocurrency prices often underperform the market when the Fear and Greed Index is in the fear zone. 

There are a few reasons why there is fear in the market. For example, traders are still concerned about the recent liquidation event, where 1.6 million investors were wiped out. Over $20 billion disappeared in just a day.

The other reason for the fear is that the recent attempts to rebound are facing substantial resistance.

Use of leverage in the crypto industry is falling

The crypto market crash is also happening because of the ongoing retreat in open interest in the industry. Data compiled by CoinGlass shows that the futures open interest in the industry has dropped by 0.6% in the last 24 hours to $141 billion. This is a big drop considering that the interest stood at over $225 billion before the liquidation event in October. 

Crypto futures open interest | Source: CoinGlass

Uniswap’s open interest jumped to $782 million earlier this week after the developers announced major changes to its tokenomics. It then started moving downwards and currently stands at $575 million. 

Pepe, on the other hand, has seen its open interest plunge to $198 million, down from the year-to-date high of $1.02 billion. Donald Trump’s World Liberty Financial (WLFI) has seen its open interest tumble to $270 million from a record high of over $1 billion. 

Institutional demand waning

The crypto crash is also happening amid lagging demand for cryptocurrencies from institutional investors. This situation is being seen in two main areas: DAT and ETF. 

ETF inflows into popular coins like Bitcoin and Ethereum has largely stalled. For example, Bitcoin ETFs suffered a $1 billion outflow last week, bringing the cumulative figure to about $60.2 billion. Ethereum ETFs have lost over $2 billion in assets in the past few months. 

Meanwhile, demand from Digital Asset Treasury (DAT) companies like Strategy, Metaplanet, Trump Media, and Tron Inc. has all plunged. 

Looking ahead, there are two main catalysts that may drive the crypto market higher. The first one is that the SEC has started approving spot altcoin ETFs, some of which are seeing strong demand. This process will likely accelerate now that the government shutdown has ended. Also, the Federal Reserve is expected to continue cutting rates this year, a move that will benefit the industry.

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