BTC News: Sentiment Drops To Extreme Fear As Bitcoin Slips Further

Crypto sentiment appears to have hit “Extreme Fear” after Bitcoin fell below $106,000 despite a $37 billion liquidity boost from the Fed.

Crypto sentiment has turned negative after Bitcoin fell below $106,000 for the first time in three weeks. The Crypto Fear & Greed Index dropped to 21 out of 100 and threw an “Extreme Fear” reading across the market.

Bitcoin (BTC) touched a low of $105,540 after slipping from highs above $109,000 earlier in the day. 

According to CoinGecko, BTC is down nearly 2% and is trading just above $106,500. This marks the lowest sentiment reading since April, when the index hit 18 during the market sell-off triggered by new US tariffs.

Crypto Sentiment Weakens Despite Fed Liquidity Boost

The timing of this sentiment crash is strange. Just days ago, the Federal Reserve injected $37 billion into the US banking system through repo operations. Normally, such liquidity increases should support asset prices including cryptocurrencies.

Between November 1 and 3, the Fed also added $29.4 billion on Friday and $7.75 billion on Monday and marked one of the biggest short-term liquidity boosts since the dot-com era. 

This move included $14.25 billion in repo operations backed by mortgage-backed securities.

For some context, Repo operations provide short-term loans to banks in exchange for Treasuries as collateral. 

When the Fed conducts these, it injects fresh money into the financial system and this new liquidity is meant to ease funding stress. It also often encourages investors to move into risk assets like crypto.

However, despite this cash flow, crypto markets have crashed all the same, with Bitcoin and ETH being down by around 5% and 9% respectively.

Reverse Repos Offset Fed Liquidity

The reason for this disconnect is in the Fed’s reverse repo operations. While regular repos add liquidity, reverse repos do the opposite and can drain cash from the system.

Recent data shows that the Fed has conducted over $75 billion in reverse repos since last Friday and nearly $24 billion of that came on November 3 alone. 

In these transactions, banks and money-market funds lend money to the Fed in exchange for Treasuries. The move pulls cash out of circulation and tightens the short-term funding.

This mixed approach has been a source of confusion for investors. This is because on paper, liquidity injections should stimulate markets. Yet when the Fed drains liquidity through reverse repos at the same time, the net effect can become uncertain.

Many institutions seem to be moving with caution and are choosing to park their funds with the Fed instead of investing. This indicates a lack of confidence in near-term growth and explains why markets continue to be under pressure, even after the liquidity boost.

Bitcoin Feels the Heat

Analysts believe Bitcoin’s fall shows more than just temporary fear. Institutional interest has slowed and blockchain activity has declined. 

ETFs tied to Bitcoin saw outflows of nearly $800 million last week and marked the first time in seven months that institutional demand fell below the daily mined supply.

Some traders are also pointing to the Federal Reserve’s changing stance on rates. 

Even though the Fed recently cut interest rates for the second time this year, it hinted that no further cuts are likely over the rest of the year.

As a result, the market is now facing a mix of weak demand and cautious sentiment, even as liquidity conditions fluctuate.

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