Emotions and Regulation

Recently, the overall sentiment in the cryptocurrency market has fallen into an extreme fear zone, with Alternative's Fear and Greed Index recording a score of 20, significantly down from the previously neutral to greedy range. This indicates a sharp contraction in participants' risk appetite. Concurrently, Coinglass data shows that the funding rates for perpetual contracts of mainstream cryptocurrencies like Bitcoin have generally turned bearish, with the long side continuously paying fees to the short side, reflecting a clear dominance of short-selling sentiment in the derivatives market, accumulating both hedging and directional short positions. Under this dual pressure of sentiment and structural factors, the uncertainty in regulatory aspects has further amplified market caution: the Bank of Lithuania recently reiterated that the deadline for cryptocurrency service licenses is approaching, and this "license red line" has emerged almost simultaneously with the rising tendency for capital to seek safety. This article will analyze how panic sentiment, regulatory policies, and derivatives structures collectively shape the evolution of market trends in the near future.

Panic Sentiment Profile

From the sentiment data, the Fear and Greed Index published by Alternative is currently at 20, having fallen into the "extreme fear" zone, showing a significant decline from the usual neutral range of 40–60. This means that both retail and institutional investors are experiencing a reduced psychological tolerance for short-term price fluctuations. Against the backdrop of continuous price pressure, combined with macro-level uncertainties regarding inflation and policy paths—such as the U.S. CPI hovering around 2.7% year-on-year in November 2025—the market's expectations for further declines and high volatility have been amplified, leaning more towards reducing positions and hedging to protect paper profits. It is noteworthy that institutional views have not completely shifted to extreme pessimism. Analyst Banmuxia pointed out that the current stage is not suitable for taking an extremely bullish stance on Bitcoin, but there is no need to be overly bearish in the next 1–2 months. This statement indicates that some professional funds, while recognizing that the risk-reward ratio no longer supports aggressive long positions, still believe that current pricing is insufficient to support "catastrophic" pessimism, with attitudes leaning more towards neutral and cautious.

Derivatives Short Structure

The panic on the sentiment level is being amplified and priced through the structure of the derivatives market. Coinglass data shows that the current funding rates for perpetual contracts of Bitcoin and mainstream altcoins are generally in a bearish range, with the long side continuously paying funding fees to the short side. This means that short positions dominate, and the market is willing to pay opportunity costs for holding short positions, thus providing shorts with more ample shorting chips. When bearish funding rates and panic indices remain low for an extended period, any short-term price rebound is easily viewed as an opportunity to short or reduce positions, putting greater pressure on leveraged longs. Meanwhile, the structural concentration risk in the DEX derivatives market is rising. CryptoRank shows that the open interest of Hyperliquid has reached seven times that of its competitors, almost forming a monopoly, with leverage and liquidity highly concentrated on a single platform. The high concentration of open interest means that once a one-sided market amplifies or liquidity experiences a temporary contraction, the potential chain liquidation risk will be elevated, and a wave of volatility triggered by sentiment could be exponentially amplified on the DEX side, further feeding back into the spot and centralized derivatives markets.

Lithuanian Regulatory Red Line

Amidst weak sentiment and a bearish structure, regulatory variables are rapidly heating up in certain European markets. The Bank of Lithuania recently made it clear that all entities providing cryptocurrency-related services locally must obtain licenses under the MiCA framework by December 31, 2025, or they will be considered to be operating illegally, facing risks of business restrictions or even exit. Among approximately 370 cryptocurrency service providers, only about 30 have completed the MiCA license application, with a compliance conversion rate of less than 10%, clearly exposing the industry's slow response to regulatory red lines. This round of regulatory tightening is bound to increase the compliance and operational costs for local service providers, squeezing the survival space for small and medium-sized institutions with limited capital strength or unclear business models, which may weaken liquidity supply and risk appetite in Lithuania and some related EU markets in the short term. From a longer-term perspective, the implementation of MiCA is expected to promote business clearing and concentration, gathering resources towards leading compliant institutions, further enhancing overall transparency and institutionalization. However, in the current phase of high panic sentiment, the uncertainty during the transition period may instead exacerbate market concerns about licensing and compliance thresholds, amplifying the discount on risk assets.

Institutional Strategy Differentiation

In the context of the panic index falling to 20 and generally bearish funding rates, the behavior patterns of top institutions are starkly different from those of retail investors. For large cryptocurrency institutions, such as Wintermute participants known for their market-making and arbitrage capabilities, the current environment actually signifies an increase in structural opportunities rather than necessitating a "big bet" choice in one direction. Funds can capture price differences between different platforms, hedge perpetual funding rates, and basis spreads, locking in relative returns during periods of increased volatility, rather than betting on prices necessarily rising or falling. Analyst Banmuxia's judgment that there is no need to be "extremely bearish" in the next 1–2 months also reflects the thinking of these institutions: they are more focused on the sustainability of volatility and liquidity rather than following a one-sided trend during extreme sentiment. For these institutions, as long as the market still has sufficient trading volume and price differences, panic sentiment and structural shorts actually provide fertile ground for profit, while ordinary investors who ignore this strategic difference and simply mimic high-leverage directional bets are more likely to become a part of the liquidity chain in the event of liquidation.

Path and Risks

At the current stage, the cryptocurrency market is in a sensitive combination of "weak sentiment + concentrated structure": the Fear and Greed Index has dropped to a low of 20, and the bearish funding rates shown by Coinglass suppress the willingness of longs to act, while the tightening of regulations represented by the Lithuanian MiCA license exerts additional pressure on certain markets. These three factors collectively shape the short-term risk appetite. On the analytical front, there are also concerns about ETF fund flows. Banmuxia suggested that if there is a significant outflow of funds from Bitcoin spot ETFs, the price of Bitcoin could potentially drop below $80,500. However, this judgment currently comes from a single analyst's perspective and cannot yet be verified through broader fund flow data, so investors should remain cautious when considering it. In the short term, what truly needs attention is the potential amplification of the liquidation chain under the high concentration of open interest structures on platforms like Hyperliquid, as well as the possible regional liquidity contraction and business clearing before and after the formal implementation of regulatory rules like MiCA. In the medium term, whether the market can stabilize will depend more on whether the macro inflation path continues to converge around 2%, whether ETF fund flows turn from net inflows to net outflows, and the repricing process of compliant institutions and valuation systems after the implementation of regulatory frameworks like MiCA. Before these key variables become clear, risk management and position control remain priorities that all participants must consider.

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