Summary: Deng Tong, Jinse Finance

There are several specific factors that have led to the latest decline in cryptocurrency prices, including:

• The US stock market has been unable to shake off the recent slump, and the impact of Deepseek on the market is still fermenting.
• The cryptocurrency market is still recovering from the $140 million Bybit exchange hack incident.
• With continuous outflows of investment in cryptocurrency investment products, investors are in risk-averse mode.
• Strong upward resistance has dampened efforts to recover the global cryptocurrency market capitalization.

US stocks weigh on the crypto market

After a sharp decline last week, the major US stock indices attempted to rebound in the afternoon on Monday, but failed, with the Nasdaq Composite closing down 1.2% and the S&P 500 down 0.5%.

On February 21, local time, Trump signed the "America First Investment Policy" memorandum. In terms of US outbound investment, the memorandum seeks to strengthen the review of US investment in China. As a result, US-listed Chinese stocks plummeted. The Nasdaq China Dragon Index fell 5.24%, and the Wind China Concept Technology Leaders Index fell more than 6%. Popular US-listed Chinese stocks across the board saw steep declines, with Alibaba and Bilibili falling more than 9%, and JD.com and Tencent Holdings falling more than 7%.

Additionally, the impact of Deepseek on the AI market is still fermenting. According to a report by investment bank TD Cowen, Microsoft has begun to cancel large-scale data center computing power leases in the US, or may not renew them, with a total scale of several hundred MW, which may reflect Microsoft's doubts about its own excessive investment in AI computing power. After Deepseek launched an open-source AI model that claims to be able to match US technology at an extremely low cost, investors have continued to be skeptical of the massive spending by tech giants like Microsoft.

Furthermore, Nvidia's earnings report is raising concerns. On Wednesday, Nvidia will release its fourth-quarter earnings report. MarketWatch pointed out last week that this earnings report will provide more details on its brand-new Blackwell chip architecture. Production has been accelerated, but these products are facing shortages, delays and overheating issues, which are said to have prompted some major customers to delay orders. These issues have raised concerns about Nvidia's short-term financial condition. These concerns arise as investors assess the potential for growth slowdown at companies and other large tech firms deeply invested in AI - companies that have typically invested billions of dollars and purchased large quantities of Nvidia chips to bet on artificial intelligence. In a report earlier this month, a Bank of America Securities analyst said Nvidia's earnings report will be "the next major test of the AI bull market," and added that Nvidia's earnings per share "will still carry enough weight, even without much fanfare."

Regarding the US economy, Neil Dutta, head of economic research at Renaissance Macro Research, said the risks facing the labor market are increasing. Real income growth is slowing, the real estate market is deteriorating, and state and local governments are cutting spending. Worryingly, the market generally believes the economy will not slow down, with a median GDP forecast of around 2.5%.

Dutta wrote: "If 2023 is an upside surprise, then 2025 is more likely to be a downside surprise."

"Passive monetary tightening is the main risk, which has important implications for financial market investors," Dutta continued. "I expect long-term interest rates to fall and stock prices to fall as risk appetite weakens. In terms of the economy, the job market situation is expected to deteriorate."

Ethereum leads the market plunge

Today's cryptocurrency market decline is part of the adjustment that began on February 21, when the Bybit cryptocurrency exchange was hacked, losing over $140 million worth of ETH and ETH-related tokens, the largest cryptocurrency theft in history.

On February 25, the sell-off continued, including:

• Ethereum leading the market decline, down 11.5% in the past 24 hours, trading at $2,503.26.
• Bitcoin and Solana also saw declines, with Bitcoin down 4.9% to $21,549.81 and Solana down 15.7% to $141.76.
• Other cryptocurrencies such as XRP fell 10.8%, Dogecoin fell 13.7%, and BNB fell 6.5%.

The large-scale liquidation in the derivatives market has exacerbated the problem.

The sell-off triggered the liquidation of leveraged long positions, with 316,393 traders liquidated in the past 24 hours, totaling $952.08 million.

The dominance of long liquidations indicates that the cryptocurrency market has been over-leveraged on the bullish side.

Although the current market sentiment is bearish, the cryptocurrency options trading platform QCP Capital stated that, compared to the FTX collapse in 2022, the cryptocurrency prices and implied volatility have shown a more moderate reaction.

QCP Capital said in a Telegram message that this "highlights the increasing maturity of the cryptocurrency landscape," and added:

"Bybit's ability to quickly secure a bridge loan to plug the liquidity gap in a critical period highlights the resilience and ample liquidity in the lending space. The industry has been steadily recovering since 2022 and experienced a significant surge before the 2022 US presidential election."

Investors continue to avoid cryptocurrency risks

The continued adjustment in the cryptocurrency market is consistent with the capital outflow from cryptocurrency investment products.

• Digital asset investment products saw capital outflows for the second consecutive week;
• According to a report by CoinShares, the total outflow for the week ending February 21 was $508 million.
• This indicates that institutional investors have reduced their investment in digital assets.
• Bitcoin saw the largest outflow, totaling $571 million.
• The year-to-date inflow has decreased from $7.4 billion two weeks ago to $6.6 billion last week.

Capital flows of cryptocurrency investment products. Source: CoinShares

CoinShares research chief James Butterfill attributed this to the uncertainty surrounding trade tariffs, monetary policy, and inflation. He said:

"We believe investors are exercising caution in the wake of the US presidential inauguration and the subsequent uncertainty around trade tariffs, inflation, and monetary policy."

At the same time, market participants are awaiting the final US inflation data of the week.

• The Personal Consumption Expenditures (PCE) index, the Federal Reserve's "preferred" inflation indicator, will be released on February 28.
• Last week, initial jobless claims exceeded the median forecast by 4,000, reaching 219,000, indicating a weakening labor market condition.
• This has significantly reduced the expectation of multiple rate cuts by 2025.
• For example, according to the CME Group's FedWatch tool, the likelihood of rate cuts is low, even though two FOMC meetings are scheduled during this period.

Probability of target rate at the FOMC meeting on July 30. Source: CME Group

The probability of the Federal Reserve keeping rates unchanged at the next two meetings is currently 97.5% in March and 73% in May.

Cryptocurrency market faces significant upward resistance

The decline in the total market capitalization of all cryptocurrencies today is part of the adjustment that began on January 31, with the key support area turning into resistance.

Key points:

• The trading price of TOTAL is between the key supply zone of $3.28 trillion and $3.31 trillion, which is the 50-day and 100-day simple moving average (SMA).
• The Relative Strength Index (RSI) is currently at 40, indicating that the market conditions are still favorable for a downward trend.
• Furthermore, the selloff may lead the cryptocurrency market to the $3.03 trillion support level.
• Please note that this has been the key support area for TOTAL since November 20.
• A breakout of this level will trigger a selloff, leading to the 200-day SMA of $2.72 trillion.

TOTAL/USD daily chart. Source: Cointelegraph/TradingView

Conversely, a push in the cryptocurrency market capitalization may bring it back to the $3.2 trillion or higher level to test the aforementioned resistance.

According to the renowned analyst Crypto Zone, "the cryptocurrency market is in a neutral period," with the Fear and Greed Index at 40.

The analyst added, "This indicates that investors are cautiously weighing their actions, and this is a critical moment for strategic decision-making."

BTC Bearish to $70,000

BitMEX co-founder Arthur Hayes stated on social media that many IBIT holders are hedge funds that earn higher yields than short-term US Treasuries by going long on ETFs and short on CME futures. If the BTC price drop causes the basis (the difference between the ETF price and the futures price) to shrink, these funds will sell IBIT and cover their CME futures positions. These funds are currently profitable, and considering the basis is close to the US Treasury yield, they will unwind their positions during the US trading session to realize their profits. I see it dropping to $70,000.

Quinn Thompson, the founder of the cryptocurrency hedge fund Lekker Capital, which specializes in trading using macroeconomic data, posted on social media: "I'm trying to convey to those who may be complacent/in denial that $95,000 is still not a bad exit price relative to what I think we can trade in 6-12 months."

Thompson believes there is an 80% chance that Bitcoin will not set a new high in the next three months and a 51% chance it will not set a new high in the next 12 months.

Source: Xinhua News, Sina Finance, Securities Times, Wall Street Journal, Coindesk, CoinTelegraph, Twitter, etc.