The real reason for the market collapse: In the past two months, the S&P 500 index and cryptocurrencies have lost over $5.5 trillion in market capitalization. We have just witnessed one of the most sudden shifts in sentiment since 2020. What happened? Let's explain. Let's start with the timeline: The market had already foreseen the trade war coming in mid-2024. In December, the tariff threats escalated, after which we saw the S&P 500 index hit multiple all-time highs. Even after the trade war officially started on February 1, we still saw more all-time highs. Since February 20, the S&P 500 index has erased a staggering $4.5 trillion in market value. Over the past 13 days, this equates to a loss of around $350 billion in market value per day. The Nasdaq is now just 8% away from entering a Bear Market, the first time since 2022. What changed so quickly? The trade war is just a scapegoat. The real reason for the market decline is the sudden shift in risk appetite. We have gone from extreme greed to extreme fear in just a few days. The market positioning was so extreme that we have completely reversed course. More interestingly, institutional capital had already pulled out of tech stocks before the selloff. Going into 2025, hedge fund exposure to the "Big Seven" stocks is at its lowest point in 22 months. Look at the divergence between the Nasdaq and fund positioning. On February 9, institutional investors established the largest short position in Ethereum on record. At the same time, retail investors flooded into the crypto markets, hoping for the implementation of the US Strategic Reserves. Even with almost all of Trump's bullish promises realized, the crypto market has still declined by over $1 trillion. Crypto further reinforces our argument: Look at the performance of all the bullish cryptocurrencies over the past two months. Even the US Bitcoin Reserves became a "sell the news" event. So, what changed? Clearly, it was the sudden shift in risk appetite. In December 2024, the market sentiment was so bullish that Apollo released their 2025 risk assessment, predicting a 0% chance of a US recession. At the same time, they predicted a 90% chance of tariffs being implemented in 2025. The market had already priced in the tariff situation, so the market decline is not entirely due to the tariffs. The Fear & Greed Index for both crypto and stocks has now dropped to its lowest level since the 2022 Bear Market. Last year, the crypto Greed Index reached over 92; now it has dropped to the complete opposite at 17. Sentiment is the ultimate driver of prices in any market, regardless of the fundamentals. When sentiment shifts this quickly, record outflows occur, leading to the "flash crashes" we've seen. In the last week of February, crypto funds saw a record $2.6 billion in outflows, about $500 million higher than the previous record set in 2024. Last week, US small-cap funds saw $3.5 billion in outflows, the highest since December 18. Midcap funds saw $2.1 billion in outflows. Sector funds saw $4.5 billion in outflows, with tech sector funds alone seeing $1.9 billion. We're seeing a shift in positioning again. This means that acting before the shift in sentiment will be the most profitable strategy in 2025. With the VIX spiking over 70% in a month, market volatility will intensify. We expect the Dow Jones to see over 1,000 point swings, and this will become the norm. Through technical and fundamental analysis, we've been trading these swings. Stocks, commodities, bonds, and crypto are all very tradable now. Want to see how we're trading it? Subscribe to our premium analysis and alerts through the link below: Finally, the price action in crypto and stocks is becoming increasingly unidirectional. The down days are deep red, and vice versa, another sign of the shift in risk appetite. Sentiment is the ultimate driver of prices.