How to Protect Your Investments in Volatile Times
Panic Is Avoided Through Understanding the Drivers of the 2025 Market Crash
In the last two months, global markets have shed an astonishing $5.5 trillion in value, with the S&P 500 and cryptocurrency markets taking the brunt of the losses. According to The Kobeissi Letter, this marks "one of the most sudden shifts in sentiment since 2020."
While mainstream headlines blame the Trump trade war, which began on February 1, 2025, the reality is far more complex. The real cause of this crash stems from a rapid and extreme shift in investor sentiment—from greed to fear—triggering a mass selloff.
Understanding the forces behind this collapse and how to protect your investments is critical. This post will explain what happened, how to spot warning signs in the future, and strategies for safeguarding and even growing your portfolio during turbulent times by effectively “buying the dip.”
The Real Cause of the 2025 Market Crash
Many assume the crash was driven solely by escalating tariffs and trade tensions. But the truth is, markets had already priced in the likelihood of these policies. As early as December 2024, analysts predicted a 90% chance of new tariffs, yet stocks continued to rally into January.
The real trigger? A psychological shift among investors.
Over just 13 trading days, the S&P 500 shed $4.5 trillion—a staggering $350 billion per day in evaporated value. Cryptocurrency markets saw similar turmoil, with Ethereum and Bitcoin experiencing flash crashes as liquidity dried up.
This wasn’t about fundamentals. It was about fear taking control.
How Market Sentiment Became the Key Driver
Investor sentiment is like a pendulum—it swings between extreme greed and extreme fear. When markets are booming, people take on more risk, assuming the rally will never end. But when fear sets in, panic selling drives markets down fast.
Before February, sentiment was at "Extreme Greed", as measured by leading investor surveys. Then, in just a few days, the mood flipped completely, creating one of the sharpest sentiment reversals in modern history.
The Kobeissi Letter describes this psychological shift best:
"Sentiment is the ultimate driver of price in ANY market, regardless of fundamentals."
This means even strong companies with solid earnings saw their stock prices collapse—not because they were in trouble, but because investors were collectively panicking.
What I’d like to remind you is that price and value are two completely different realities. Anyone can ask the following question to illuminate the long-term health of their portfolio: “Has the value of this asset over my time horizon changed materially, or has the price disconnected from it in the immediate?”
Asking this practical question allows you to recognize discounted sales to double down on and frothy bubbles in the making to take profits before they pop.
Warning Signs That Most Investors Missed
While many retail investors were blindsided, institutional players saw trouble coming and exited early:
Hedge funds reduced their exposure to major tech stocks (the "Magnificent 7") to a 22-month low before the crash.
Tech funds lost $1.9 billion in outflows in a single week.
Small-cap funds lost $3.5 billion as investors fled riskier assets.
The crypto market saw a record $2.6 billion exit in late February.
These moves indicate that smart money was already positioning for volatility while everyday investors remained overly optimistic.
The Rise of Flash Crashes Phenomenon
A major feature of this crash was the sudden and extreme "flash crashes" in certain assets.
Ethereum plunged within minutes on February 3.
Bitcoin saw a massive liquidation event on February 25 despite bullish political news on the Strategic Bitcoin Reserve Executive Order (Fundamentals).
Flash crashes occur when liquidity dries up, meaning there aren’t enough buyers to absorb sell orders. As a result, prices plunge in a matter of seconds before stabilizing.
As market instability increases, you could expect to see days with more than 1,000-point swings in the Dow Jones throughout 2025.
The Hidden Liquidity Risk of Offshore U.S. Dollar Deposits: What Investors Must Know
Offshore U.S. dollar deposits, while offering potential benefits such as tax advantages and diversification, carry inherent risks that investors must carefully consider. A significant concern is the potential for liquidity constraints during periods of financial stress. Banks outside the United States hold substantial dollar-denominated liabilities, estimated at approximately $16 trillion, which they need to roll over upon maturity. Notably, about $13 trillion of these obligations are booked outside the U.S., where the Federal Reserve's discount window does not provide a direct backstop.
During global financial disruptions, such as the 2008 crisis and the COVID-19 pandemic, offshore U.S. dollar funding markets experienced significant strains. These periods highlighted the vulnerabilities associated with offshore dollar liquidity, as non-U.S. banks faced heightened funding pressures.
Investors should also be aware of the potential for rapid shifts in currency values and policy changes that can impact offshore holdings. For instance, recent discussions around imposing a 'user fee' on U.S. Treasury securities held by foreign entities could influence the attractiveness of offshore dollar investments.
To mitigate these risks, investors (and their advisors) must conduct thorough due diligence, maintain a diversified portfolio, and stay informed about global financial developments that could affect the liquidity and stability of offshore U.S. dollar deposits. I highly recommend you subscribe to my friend
on Substack, who shares wonderful insights on Tradfi and BTCFi through that channel.How to Protect (and Grow) Your Wealth in a Volatile Market
Rather than reacting emotionally to market swings, use these strategies to strengthen your portfolio:
1. Assess Your Risk Exposure
📌 Ask your financial advisor:
"How much exposure do I have to high-volatility assets like tech stocks and crypto?"
Technology, speculative stocks, and cryptocurrencies were the hardest-hit areas in this crash. Understanding where your money is allocated can help you adjust before the next downturn.
2. Diversify Smartly
A well-balanced portfolio can help you weather volatility. Those who spread investments across multiple asset classes saw fewer losses.
📌 Ask your advisor:
"How diversified is my portfolio?"
"Which assets can hold steady (or gain) in market downturns?"
Consider real estate, defensive stocks, bonds, and commodities as stabilizing forces in a turbulent market.
3. Keep Cash Ready for Opportunities
One of the biggest advantages of a crash is having cash available to buy undervalued assets, which is also known as “BTD” (Buying the Dip).
📌 Ask your advisor:
"Should we keep some cash on the sidelines to buy during market dips?"
The best opportunities often arise when everyone else is panicking. Market crashes create buying windows for quality assets at a discount.
4. Learn to Spot Warning Signs
The 2025 crash had clear warning signals, including:
✅ Extreme bullish sentiment before the drop
✅ Big institutional sell-offs before retail investors caught on
✅ Record-high inflows into speculative assets
📌 Ask your advisor:
"What indicators should we watch for potential market downturns?"
5. Avoid Panic Selling
The worst mistake during a crash? Selling at the bottom out of fear.
Even though the Nasdaq approached bear market territory, those who sold in panic locked in losses, while patient investors held on or even bought in at lower prices.
📌 Ask your advisor:
"What’s our game plan to stay rational in the next market correction?"
How to Find Opportunities Amid Market Chaos
The biggest lesson from the 2025 crash? Market downturns create rare buying opportunities.
Quality companies became undervalued alongside weaker ones.
The Kobeissi Letter noted that similar flash crashes in the past led to rapid recoveries in certain asset classes.
📌 Ask your advisor:
"Which high-quality investments are on sale right now?"
"How can we separate good opportunities from actual troubled assets?"
Your Wealth Protection Plan for 2025
✅ Take Action Now
🔹 Review your risk exposure before the next correction
🔹 Schedule regular portfolio check-ups—markets are changing fast
🔹 Develop a market crash plan—decide ahead of time what you’ll do
🔹 Consider keeping cash available to seize investment opportunities
🔹 Stay focused on long-term goals and avoid emotional decision-making
Final Thoughts
The 2025 market crash revealed how quickly greed can turn into fear and wipe out trillions in wealth. But it also showed that prepared investors can navigate the chaos—and even profit from it.
Markets will always swing between extremes. Those who stay disciplined, diversified, and opportunistic will thrive, even in turbulent times.
📩 What’s your strategy for 2025? Reply and share your insights!
Yours in health and wealth
~Chris J Snook
Sources & Further Reading
🔗 The Kobeissi Letter: Market Crash Analysis
🔗 Market Sentiment Shifts & Hedge Fund Positioning
🔗 Bitcoin & Ethereum Flash Crashes
🔗 Liquidity Risks in 2025 Markets
🔗 Federal Reserve’s Stagflation Risk