Over the past two months, global markets have faced a historic meltdown. The S&P 500 and cryptocurrencies together lost a staggering $5.5 trillion in value. This isn’t just about tariffs or politics. It’s about a dramatic shift in investor confidence. Here’s why markets crashing.
The Timeline of Fear
Markets had anticipated a US-China trade war since mid-2024. Tariff threats in December 2024 coincided with stock markets hitting record highs. When the trade war officially began on February 1, 2025, markets initially shrugged it off. But by February 20, everything changed. The S&P 500 plunged, losing $4.5 trillion, $350 billion daily for 13 days straight. The Nasdaq, down 8% from its peak, teeters near its first bear market since 2022.
Source | X @KobeissiLetter
The Real Driver: Sentiment, Not Tariffs
While the trade war is blamed, the crash stems from a rapid shift in investor psychology. Markets swung from “Extreme Greed” to “Extreme Fear” in days. In December 2024, some analysts saw a 0% chance of a 2025 recession but a 90% likelihood of tariffs. Investors ignored risks until suddenly they couldn’t.
Source | CNN
Institutions Moved First
Smart money exited early. By 2025, hedge funds cut exposure to tech “Magnificent 7” stocks (like Apple, Amazon) to a 22-month low.
On February 9, institutional investors placed the largest short bet against Ethereum in history, just as retail investors piled into crypto, hoping for a US Bitcoin reserve. Crypto then crashed, losing 1 trillion USDT marketcap despite positive political developments. Even bullish news became a “sell the news” moment.
Source | X @KobeissiLetter
Fear Spreads Everywhere
Fear & Greed Indexes for stocks and crypto hit lows last seen in the 2022 bear market. Crypto’s index dropped from 92 (Extreme Greed) to 17 (Extreme Fear). Money fled markets at record speeds:
- Crypto funds: 2.6 billion USDC withdrawn in a week (February 2025).
- US small/mid-cap stocks: $3.5 billion and $2.1 billion pulled out, respectively.
- Tech sector: $1.9 billion withdrawn in days.
Bigger Forces at Play
Two critical factors worsened the panic:
- Debt Crisis: In 2025, $9.2 trillion of US debt must be refinanced. Lower interest rates would ease this burden, but that likely requires a recession, a risk the Federal Reserve now acknowledges.
- Rate Cut Bets: Markets now expect 3–4 Fed rate cuts in 2025, with a 50% chance of cuts starting by May. Weeks earlier, investors priced in zero cuts.
Warning Signs Ignored
Gold, a safe-haven asset, rose 9% since December 2024 while Bitcoin fell 17%. This “risk-off” shift began in February but was overlooked. Similarly, Tesla, seen as a “pro-Trump” stock, plunged 15% in a day, its seventh-worst drop ever, signaling fading confidence.
Source | X @KobeissiLetter
What’s Next?
Volatility will dominate. The VIX “fear index” spiked 70% in a month, hinting at wild swings ahead. The Dow could see daily 1,000-point moves. Markets now react sharply: down days are steep losses; up days are rebounds, but uncertainty rules.
The Bottom Line
Markets are driven by sentiment, not just facts. When fear replaces greed, selling snowballs. Institutions positioned early, leaving retail investors scrambling. With debt, rate cuts, and recession risks looming, confidence remains fragile. For investors, navigating 2025 will mean watching sentiment as closely as earnings or politics because in today’s markets, psychology moves faster than fundamentals.
This article is not financial advice, it’s merely an opinion. Please do your own research (DYOR). You can also DYOR on blog.millionero.com. When you’re ready, come trade spot and perpetual futures on Millionero.