The Crypto Fear and Greed Index dropped to 25 yesterday, signaling “Extreme Fear” in the cryptocurrency market. Yet, an analyst suggests that the current panic might be exaggerated, largely driven by recency bias.

This comes as Bitcoin is navigating market volatility triggered by broader macroeconomic conditions. The leading cryptocurrency has fallen 11.4% year to date, reflecting the wider sentiment of fear and uncertainty.

Is the Recency Bias Inflating Fear Around Bitcoin’s Price?

In the latest X (formerly Twitter) post, analyst Lark Davis highlighted an interesting trend in the Crypto Fear and Greed Index. This sentiment gauge measures market emotions from 0 (Extreme Fear) to 100 (Extreme Greed). 

On April 3, it plummeted to a low of 25, indicating heightened anxiety among investors, even though Bitcoin was trading around $80,000. In fact, the latest value of 28 also indicated substantial fear among market participants.

Nonetheless, according to Davis, the sentiment was out of place, given Bitcoin’s price performance. He noted that the index’s decline contrasted with market conditions six months prior. Despite Bitcoin trading at $65,000, the index showed a neutral reading then.

“This is what’s called “recency bias,” and you can leverage it,” he wrote.

For context, recency bias refers to the tendency of investors or traders to give more weight to recent events or information when making decisions while disregarding longer-term trends or data. This psychological bias often leads to overreaction to short-term market movements, such as a sudden price spike or a crash.

“So that’s why we’re seeing higher fear readings at today’s $80,000, than yesterday’s $65,000,” David remarked.

He suggested that the fear seen in the market is not entirely justified and that reactions to short-term fluctuations are often more extreme than necessary.

This coincides with Bitcoin continuing to see fluctuations amid President Trump’s tariff plans and fears of a potential recession. While it remains relatively steady compared to traditional markets, the decline in Bitcoin’s value has still raised doubts about its stability and long-term potential.

Notably, Michael Saylor, chairman of Strategy (formerly MicroStrategy), highlighted that short-term volatility doesn’t reflect Bitcoin’s long-term potential.

“Bitcoin is most volatile because it is most useful,” he said.

Saylor explained that Bitcoin’s volatility is largely due to its liquidity and 24/7 availability, Which means it is more susceptible to rapid sell-offs during market panics. However, Saylor reiterated that while Bitcoin behaves like a risk asset in the short term, its long-term value is unaffected by these fluctuations, reinforcing its role as a store of value.

Meanwhile, Arthur Hayes, the former CEO of BitMEX, provided another perspective on the ongoing market conditions. 

“Some of y’all are running scurred, but I love tariffs,” Hayes stated.

According to Hayes, global economic imbalances will eventually be corrected. While short-term market pain is inevitable, Hayes predicts that the solution will likely involve printing more money, which he views as beneficial for Bitcoin.

“The $ is weakening alongside foreigners selling US tech stocks and bringing money home. This is good for BTC and gold over medium term,” he forecasted.

His comments align with BeInCrypto’s recent report on the inverse correlation between the US Dollar Index (DXY) and BTC. Thus, a decline in the former could benefit the latter. 

For now, Bitcoin continues to see modest losses. Over the past week, it has declined by 4.5%. Meanwhile, the coin has shed 1.0% of its value over the past day. At the time of writing, Bitcoin was trading at $82,855.

According to new data from Arkham Intelligence, three major Bitcoin ETF issuers are acquiring huge amounts of BTC today. The ETFs had $220 million in net inflows yesterday, and the issuers are potentially expecting a spike in demand.

Although Bitcoin has seen wild fluctuations over the past couple of days, institutional investors might show more confidence in the leading cryptocurrency than the TradFi market.

Why are ETF Issuers Buying Bitcoin?

The crypto market experienced wider liquidations today, and fears of a broader recession are circulating heavily. Since President Trump imposed much higher tariffs than expected, crypto is mirroring the TradFi stock market with notable downturns.

However, the US spot Bitcoin ETFs market shows that institutional demand might rebound in the short term.

“Donald Trump just tariffed the entire world. So? Grayscale is buying Bitcoin, Fidelity is buying Bitcoin, Ark Invest is buying Bitcoin,” Arkham Intelligence noted on social media.

Arkham Intelligence, a prominent blockchain analysis platform, is not the only one noticing this trend in Bitcoin ETFs. Although Bitcoin’s price has been very volatile over the last two days, it has consistently managed to return to a rough baseline.

The asset’s long-short ratio was 0.94 last week, and it shifted to 1 today. This signals a move toward more balanced investor positioning.

Previously, with 48.5% long positions against 51.5% short positions, the market exhibited a slight bearish tilt. Today, the equal split—with 50.5% long positions—signals that investors have neutralized their stance, reducing the bearish bias.

This balanced positioning suggests that market sentiment has stabilized, potentially reflecting increased uncertainty about near-term price movements. Bitcoin investors may now be awaiting clearer market signals before committing to a more directional bias.

Additionally, the Bitcoin ETFs have performed well in another key area. According to data from SoSo Value, the entire asset category had net inflows of $220 million yesterday.

Granted, Trump made his Liberation Day announcements after the stock market closed yesterday, but that’s still a very impressive amount of growth.

It is currently unclear exactly what impact today’s market turmoil had on the Bitcoin ETFs as an asset category. However, Arkham’s data suggests that these issuers are making notable investments in BTC.

If nothing else, it suggests that these firms are anticipating an uptick in demand in the near future. There are still many unanswered questions about tariffs, crypto markets, and the global economy as a whole.

If ETF inflows continue throughout this week, it will reflect institutional investors’ betting on BTC to remain more stable and sustainable than TradFi markets amid recession concerns.

An expert has cautioned that the reverse yen carry trade is currently unfolding, albeit at a slower and more controlled pace.

This could have significant implications not only for traditional financial markets but also for cryptocurrencies like Bitcoin (BTC).

Why Investors Should Pay Attention to the Yen Carry Trade?

For context, the yen carry trade is a strategy in which investors borrow yen at low interest rates and invest the funds in higher-yielding assets, such as the US dollar or technology stocks. The goal is to profit from the difference in interest rates.

Nonetheless, this strategy’s risk arises from currency fluctuations. If the yen appreciates, investors converting the investment back to yen to repay the loan may see reduced or eliminated profits.

According to Michael A. Gayed, this scenario appears to be materializing now. 

“The problem today is that those borrowing costs are starting to get more expensive. Traders who were able to access virtually free capital for years are now finding themselves sitting on costly margin positions that they’re potentially being forced to unwind,” he said.

In his recent report, Gayed explained that rising borrowing costs compel traders to offload dollar-denominated assets. This, in turn, heightens market volatility and depresses the prices of risk assets.

Notably, this happened last year as well. Gayed pointed out that in August 2024, the Bank of Japan’s decision to raise interest rates twice sparked a significant rally in the yen. Yet, at the same time, the S&P 500 saw an approximate 10% correction.

He added that the subsequent rebound alleviated investor concerns. Nevertheless, he believes the real issue is that the situation was never fully resolved. 

“Big carry trade unwinds don’t just last a couple of weeks, and conditions are suddenly normalized,” Gayed stressed.

He added that the current market conditions resemble a similar situation. Notably, the Japanese 10-year yield has surged to 1.56%, the highest since 2008. As these yields climb, the yen strengthens, and the carry trade dynamics begin to shift. 

“The 10-year yield continues to climb higher and close the interest rate differential on comparable 10-year US Treasury yields. That’s going to continue fueling strength in the yen that may continue into the later stages of 2025. And as long as the yen continues to strengthen, whether it’s quickly and slowly, that’s going to keep unwinding any outstanding carry trade that’s still out there. And it’s probably a lot,” he stated.

Moreover, Gayed suggested that the Bank of Japan will likely continue raising rates. Meanwhile, the Fed might possibly lower them in the coming months, further solidifying his outlook.

He also focused on the correlation between the S&P 500 and the yen. Gayed noted that the yen’s rise preceded the recent S&P 500 pullback by several weeks. 

The correction could also be linked to an anticipated US growth slowdown and potential tariffs. Yet, he emphasized that the reverse carry trade is particularly risky due to its potential to escalate quickly, especially in the current macroeconomic climate.

“The market is plenty capable of correcting on its own, given the fears associated with tariffs and slowing economic growth. If you add people being forced to sell their US equity holdings in order to close out their short yen positions on top of that, it’s easy to see how a bad situation quickly becomes worse. And it’s already happening. Japan is still the real risk,” he claimed.

Now, the question is, why will this impact Bitcoin? Given its close correlation with the S&P 500, a correction in the latter could spell trouble for BTC. Analyst Lark Davis pointed out that Bitcoin and the S&P 500 have been closely linked since 2023.

“So as we’re trying to determine where Bitcoin goes from here, the unfortunate truth is that it all probably depends on what happens to the major stock indices,” he noted 

Davis also advised crypto investors to monitor the broader economy, the stock market, and the M2 money supply, both in the US and globally.

For now, the largest cryptocurrency continues to navigate volatility ahead of President Trump’s tariff announcement. In fact, BeInCrypto reported that spot Bitcoin ETFs have recorded outflows for three consecutive days.

On the price front, Bitcoin has dipped 3.1% over the past week. At press time, the coin was trading at $85,042, representing small gains of 0.8% over the past day.