The expectation of a recession in the U.S. economy resurfaces, Bitcoin faces a heavy blow, welcoming a reallocation opportunity.

The global macro-financial situation, especially in the US market, is undergoing rapid and dramatic changes.

Recent data shows that inflation in the United States has rebounded, while consumer confidence has fallen to a 15-month low. These factors have led traders to start pricing in a potential economic recession, causing the three major U.S. stock indices to quickly drop to near the 120-day moving average.

In this uncertain environment, risk aversion is rising, the yield on the 10-year U.S. Treasury bond has significantly decreased, and gold prices are showing signs of peaking.

Affected by the trend of the U.S. stock market, Bitcoin, which was originally poised for a surge, experienced a sharp decline in the last week of February, facing the largest correction since the beginning of this cycle.

Analysis suggests that this round of market activity is essentially a correction to the previous "Trump trade" expectations. Considering that U.S. policies may self-adjust and the mid-to-long-term prospects of the crypto market, Bitcoin may be entering a good opportunity for long-term positioning. Investors may consider gradually building long positions based on controllable risks.

Macroeconomics: Concerns about economic recession drive the market down, and it may continue to be under pressure in the short term.

Recently, the economic and employment data released by the United States, along with the chaos caused by the tariff policy of the Trump administration, have become two key factors influencing the trends in macro finance and the cryptocurrency market.

The core employment data released in early February showed that non-farm payrolls increased by 143,000 in January, far below the expected 170,000. The unemployment rate was 4%, slightly lower than the expected 4.1%. The slowdown in job growth has intensified market concerns about a recession in the U.S. economy.

The subsequently released CPI data shows that the CPI month-on-month rate in January reached 0.5%, higher than the expected 0.3% and last December's 0.4%, pushing the annual rate up to 3%, exceeding the expected 2.9%. This marks the third consecutive month of inflation rebound, reinforcing market views that the Federal Reserve may delay interest rate cuts. Even if signs of economic recession appear, it may be difficult to change the Federal Reserve's stance.

In late February, the final consumer confidence index for February released by the University of Michigan in the United States was 64.7, down from the initial value of 67.8, reaching a 15-month low. Continued low consumer confidence is expected to impact the business outlook.

These negative data compounded and ultimately undermined market confidence. The three major U.S. stock indexes subsequently experienced significant declines. In the following week, the stock market continued to fall, erasing all gains made this month. The Nasdaq index fell 3.97% for the month, the Dow Jones Industrial Average fell 1.58% for the month, the S&P 500 index fell 1.42% for the month, and the Russell 2000 small-cap index plummeted 5.45%. Both the Nasdaq and the S&P 500 fell below the 120-day moving average.

For traders, facing the rebound of inflation and the potential deterioration of employment prospects, the shadow of "economic recession" is looming again, and reducing long positions seems to be the best choice at the moment.

In addition to the worsening economic data, the Trump administration's unpredictability in tariff policy has also exacerbated market chaos and pessimism. At the end of January, tariffs were announced on multiple countries, followed by several changes to the implementation timeline and tax rates, leaving the market at a loss. What was originally seen as a tool for political negotiation is about to be implemented as a tariff policy, becoming an important factor in driving up inflation, which may exceed market expectations and further undermine trader confidence.

The "Russia-Ukraine negotiations" that were previously highly anticipated saw a dramatic turn of events at the end of February, with the planned agreement falling through. European countries reiterated their support for Ukraine's position, and the differences between the US and Europe are expected to further intensify. The expectations of ending the war to increase oil production and reduce inflation have therefore been significantly diminished.

Since November last year, the "Trump trade" has been based on expectations of strong economic growth. Now, with weak employment data, persistent high inflation, and tariffs exacerbating inflation expectations, market expectations have reversed, beginning to exit the "Trump trade" and pricing in a "recession" scenario. According to this logic, the decline of the three major U.S. stock indices may just be the beginning.

Since mid-January, the yield on the U.S. 10-year Treasury bond has continued to decline, falling from a peak of 4.809% to 4.210%. This significant change in the "pricing anchor" reflects a deepening pessimistic expectation of the economic outlook in the capital markets.

With the rebound of inflation, signs of economic recession, and significant declines in the stock market and government bond yields, market expectations for the Federal Reserve to cut interest rates this year have begun to rise again, with the anticipated number of cuts increasing from 1 to 2. From a technical perspective, both the Nasdaq index and the S&P 500 index have fallen below the 120-day moving average. Given the current severe situation, if the market's expectations for rate cuts do not receive a positive response, it may continue to face downward pressure in the short term.

Crypto Assets: Key Support Broken, Mid to Long-term Layout Opportunities Emerge

In February, Bitcoin opened at $102,414.05, closed at $84,293.73, reached a high of $102,781.65, and a low of $78,167.81, experiencing a decline of 17.69% over the month, a drop of $18,113.53, and a volatility of 24.03%. The maximum drop from the high point reached 28.52%, marking the largest retracement in this cycle since January 2023.

It is worth noting that the decline for the entire month was concentrated in the last week, with a rapid short-term sell-off pushing market sentiment into extreme panic. Corresponding to the largest decline of the cycle, the Fear and Greed Index fell to 10 points on February 27, the lowest for this cycle, close to the 6 points during the last cycle's bear market when LUNA collapsed.

From a technical perspective, the key support level has been effectively broken, echoing the U.S. stock market's retreat from the "Trump trade." The two important upward trend lines of this cycle have been breached in a short period of time. By the end of the month, the Bitcoin price closed near the 200-day moving average.

In addition to being correlated with the US stock market, negative events within the cryptocurrency market are also one of the reasons for the significant downturn this month.

In mid-February, the Argentine president promoted a certain MEME coin on social media, triggering a speculative frenzy, with its market value soaring to $4.5 billion at one point. However, the creator then withdrew funds, causing the coin's price to collapse, resulting in heavy losses for investors.

In late February, suspected North Korean hackers exploited a vulnerability in a certain exchange to steal over 400,000 ETH and stETH, with a total value exceeding 1.5 billion dollars, marking the largest attack in the history of cryptocurrency.

At the same time, a certain DeFi protocol was attacked, with stolen funds exceeding 49 million dollars.

In addition, the bankruptcy liquidation of FTX in early March will result in a large number of SOL tokens being unlocked, with a total value of approximately $2 billion, accounting for 2.29% of the total SOL supply, driving its price to drop over 50% throughout the month in a weak market.

Analysis suggests that the largest drop of the current cycle in the crypto market in February was directly caused by the decline in the U.S. stock market driven by recession expectations, which can also be understood as a pricing correction for the "Trump trade." Theoretically, Bitcoin could drop to around $73,000, but considering that the impact of the Trump administration on the fundamentals of Bitcoin is much greater than that of the U.S. stock market, the probability of this theoretical low being realized is relatively low. The current cycle is still ongoing, and based on the self-adjustment of U.S. policies and the long-term optimistic logic in the crypto market, Bitcoin may currently be facing a good opportunity for medium to long-term positioning, allowing for the possibility to gradually build long positions while controlling risks.

Capital Situation: ETF funds have significantly flowed out, becoming a direct driver of the decline.

As Trump's trading sentiment cools down, the inflow of funds into the crypto market significantly slows in February. The slowdown in capital inflow interacts with the continuous decline in prices, ultimately leading to Bitcoin's price plummeting after consolidating around the $96,000 level for a long time in the last week of February. The scale of capital inflow in February drastically decreased to $2.111 billion.

In-depth analysis of capital flows reveals a divergence between the stablecoin channel and the Bitcoin spot ETF channel. The stablecoin channel saw a net inflow of 5.3 billion USD for the entire month, while the ETF channel experienced a net outflow of as much as 3.249 billion USD.

Previous analyses have pointed out multiple times that the Bitcoin spot ETF has mastered the short-term pricing power, thus the price trend of Bitcoin is highly correlated with the US stock market.

This month, net outflows from Bitcoin spot ETFs exceeded $3.2 billion, setting a record for the largest single-month sell-off since their launch, becoming the most direct external factor for the decline. The future trend of Bitcoin mainly depends on the improvement of U.S. economic expectations and the inflow of ETF funds.

On-chain data: Short-term investors stop-loss escape

Since the initiation of the second sell-off in early October 2023, 1.12 million Bitcoins have been transferred from long-term holders to short-term investors. The second sell-off is seen as a necessary condition for the end of the bull market cycle, with the underlying logic being that the growth of active Bitcoin will deplete liquidity once it reaches a certain scale, leading to the complete end of the upward trend.

Looking at the consolidation and sharp decline in February, long-term holders have shown extreme restraint, only selling 7,271 coins. In fact, existing long-term holders have long ignored the offers in the range of 89,000-110,000 dollars, choosing to hold coins and wait for a price increase.

In the last week of February, the chips that were sold off mainly came from short-term investors. On-chain data analysis shows that short-term investors were still holding on until February 24, but on the 25th, there was a large-scale stop-loss, with on-chain short-term investors realizing a loss of 255 million USD that day alone. This is the second-largest single-day loss in this cycle, second only to August 5, 2023 (with on-chain losses of 362 million). Historical experience indicates that after short-term investors experience a similar scale of large losses, the market often welcomes a phase bottom.

Further analysis of on-chain data reveals that since February 24, the number of Bitcoin in the $78,000-$89,000 range has increased by 564,920.06 coins, while the number of Bitcoin in the $89,000-$110,000 range has decreased by 412,875.03 coins.

The holders in the range of 89,000 to 110,000 USD were mainly formed between November last year and February this year, belonging to typical short-term investors. The short-term investors' stop-loss selling may build a mid-term bottom, while also solidifying the range of 73,000 to 89,000, which has relatively few chips.

Conclusion

The January report emphasized that "the biggest external uncertainty comes from the chain reaction formed by the expectations of interest rate cuts and capital supply after the implementation of Trump's economic policies. Once liquidity is constrained, volatility will significantly increase." This concern has indeed become a reality.

According to the analysis, the current stop-loss selling mainly comes from short-term investors, while long-term holders have quietly slowed down their selling and are holding coins in anticipation of a rise. It is judged that the current bull market is only in a consolidation state, rather than turning bearish.

In February, the largest scale correction of Bitcoin in this cycle occurred, triggered by the adjustment in pricing of the "economic recession expectations" in the historically high U.S. stock market, resulting in a large outflow of funds from Bitcoin spot ETFs. The turning point will also come from a shift in expectations and a trend rebound in the U.S. stock market.

From an internal structural perspective, it is relatively stable. Bitcoin and the cryptocurrency market still operate within cyclical patterns, and a short-term price decline may bring opportunities for medium to long-term positioning.

It is important to closely monitor the trends of the U.S. macroeconomic situation, market expectations, and the Federal Reserve's attitude towards restarting interest rate cuts.

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