The market, project, cryptocurrency and other information, opinions and judgments mentioned in this report are for reference only and do not constitute any investment advice.
Written by 0xWeilan
Globally, especially in the US, the macroeconomic finance is undergoing a rapid and dramatic turnaround.
The US inflation data has risen, while consumer confidence has fallen to a 15-month low, causing traders to start pricing in expectations of a "US economic recession", driving the three major US stock indexes to quickly fall near the 120-day moving average.
Capital has initiated a risk-averse operation, with the yield on the 10-year US Treasury bond falling rapidly, and gold also showing signs of topping.
Affected by the linkage with US stocks, BTC, which had been building up momentum to surge, broke through the position in the last week of February and experienced the largest drawdown and the largest loss week of this cycle.
EMC Labs believes that this situation is essentially a payback of the "Trump trade" pricing. Based on the self-adjustment of US policies and the long-term optimism in the crypto market, we believe that BTC is facing a good opportunity for medium and long-term allocation, and can be cautiously and gradually added to the long position.
Macroeconomic Finance: Expectations of a "US economic recession" drive the market to price downwards, with continued pressure in the medium and short term
The economic and employment data released by the US government in February and the chaos caused by Trump's tariffs have become the two core factors affecting the recent trends in macroeconomic finance and the crypto market.
On February 7, the US Bureau of Labor Statistics first released the core employment data, with the seasonally adjusted non-farm payrolls in January only 143,000, significantly lower than the expected 170,000. The unemployment rate was 4%, slightly lower than the expected 4.1%. The significant contraction in non-farm employment has begun to exacerbate the market's expectations of a US economic recession.
The CPI data released on February 12 showed that the monthly CPI rate in January was as high as 0.5%, far higher than the expected 0.3% and also higher than 0.4% in December last year, driving the year-on-year rate to exceed the expected 2.9% to reach 3%. Since then, US inflation data has rebounded for three consecutive months, making the market firmly believe that the Fed has more sufficient reasons to postpone the timing of rate cuts. Even if there are expectations of an economic recession, it is unlikely to change the Fed's decision.
On February 21, the University of Michigan released the US consumer confidence index for February, with a final value of 64.7, lower than the initial value of 67.8, falling to the lowest point in 15 months. The continued low consumer confidence will inevitably be transmitted to the corporate side.
University of Michigan Consumer Confidence Index
Combined with the previous negative information, this data that greatly exceeded expectations ultimately shattered market confidence. On that day, the three major US stock indexes all experienced a significant decline.
After two consecutive years of significant increases and reaching historical highs, the US stocks continued to decline significantly in the week following February 21 (Friday), erasing all the gains for the month and continuing to fall. The Nasdaq fell 3.97% for the month, the Dow Jones fell 1.58%, the S&P 500 fell 1.42%, and the small-cap index RUT2000 fell 5.45%. The Nasdaq and S&P 500 both fell below the 120-day moving average.
For traders, with inflation rebounding consecutively, the employment situation possibly starting to deteriorate, the "economic recession" shadow has come again, and reducing long positions may be the best choice.
The crisis does not end here. In addition to the deterioration of economic and employment data, Trump's chaotic and inconsistent decisions on tariff policies have also made the market feel confused and pessimistic.
In January, Trump signed the "America First Trade Policy" memorandum, and at the end of the month announced a 25% tariff on goods from Mexico and Canada, and a 10% tariff on goods from China (already implemented). He then announced a one-month postponement of the tariff increase on Canada and Mexico, and by the end of the month directly announced that it would be implemented starting March 4, and an additional 10% tariff on China. During this period, Trump also announced the implementation of reciprocal tariffs on Europe and other countries.
Previously, the market viewed Trump's tariff policy as a political bargaining chip, but now it is quickly being implemented and has begun to become an important factor driving inflation. This may have exceeded market expectations, making traders increasingly pessimistic.
The only thing that could have a positive impact on inflation and rate cuts, the "Russia-Ukraine negotiations", progressed well for most of February, but on the last day of the month, the two presidents had a dramatic conflict at the White House press conference, causing the mineral agreement that was about to be signed to fail. European leaders have vowed to support Ukraine, and the rift between the US and Europe will continue to deepen. The "Russia-Ukraine war" that was already a done deal has encountered twists and turns, and it is unlikely to end in the short term. At this point, the expectation of ending the war and increasing oil production to reduce inflation has been greatly discounted.
Since November last year, the "Trump trade" has been based on the expectation of strong economic growth. Now, with the decline in employment data, persistent high inflation, and the exacerbation of inflation expectations by tariffs, the market's expectations have reversed, and the "economic recession" pricing has been triggered. Based on this logic, the decline of the three major stock indexes may just be the beginning.
US 10-year Treasury Yield (Daily)
Since mid-January, the yield on the 10-year US Treasury bond has continued to decline, falling from the highest of 4.809% to 4.210%. The significant change in the "pricing anchor" reflects the capital market's substantial downward revision of expectations for an economic recession.
Accompanied by the rebound in inflation, signs of economic decline, and the sharp decline in the stock market and 10-year Treasury yields, the market's expectations for Fed rate cuts this year have started to rise again, from 1 time to 2 times. Technically, the Nasdaq and S&P 500 have both fallen below the 120-day moving average. Based on the current severe situation, the market has increased its expectations of rate cuts, and if it does not receive a positive response, it is likely to continue to fall sharply in the short term.
Crypto Assets: The "Trump Bottom" has been breached, presenting a good medium and long-term allocation opportunity
In February, BTC opened at $102,414.05, closed at $84,293.73, reached a high of $102,781.65, and a low of $78,167.81, down 17.69% or $18,113.53 for the month, with a volatility of 24.03%. The maximum drawdown from the high was 28.52%, recording the largest drawdown of this cycle (January 2023) so far.
BTC Price Trend (Daily)
And the monthly decline was concentrated in the last week, with the rapid and sharp decline in the short term causing the market to enter a state of extreme panic. Corresponding to the largest cycle decline, the Fear and Greed Index fell to 10 points on February 27, the lowest point of this cycle, approaching the 6 points during the LUNA collapse in the previous bear market cycle.
Technically, the "Trump Bottom" (purple area in the chart) has been effectively breached, which also echoes the US stock market's payback of the "Trump trade". The "first upward trend line" and "second upward trend line" that EMC Labs previously focused on were quickly broken in a short period of time. By the end of the month, the BTC price closed near the 200-day moving average.
In addition to the linkage with the US stock market, the cycle-level sharp decline in the crypto market this month is also related to negative events within the market.
On February 14, Argentine President Javier Milei posted on the X platform to promote the MEME coin Libra, triggering a speculative frenzy and pushing its market cap to $4.5 billion. Subsequently, the creator withdrew the liquidity from the trading pool, causing the coin price to plummet rapidly, resulting in heavy losses for investors.
On February 21, suspected North Korean hackers used a technical vulnerability in the Bybit exchange to steal over 400,000 ETH and stETH, worth over $1.5 billion, the largest attack on cryptocurrencies in history in dollar terms.
On February 23, the Infini contract was attacked, with over $49 million in funds stolen.
In addition, on March 1, the unlocking of 11.2 million SOL tokens due to the FTX bankruptcy liquidation, worth only $2 billion, will put pressure on the SOL price, which has already fallen by more than 50% in the weak market this month.
Followin' the EMC Labs' assessment, the largest decline in the crypto market this week was directly caused by the drop in the US stock market driven by expectations of an economic recession, which can be understood as a pricing of the "Trump trade" unwinding. Based on the extent of the US stock market decline, BTC could theoretically drop to the $73,000 level, but considering that the Trump administration's ascent to power has a much greater positive impact on BTC's fundamentals than the US stock market, the probability of this theoretical downside low being realized is relatively low. The cycle is still ongoing, and based on the logic of policy self-adjustment in the US and the long-term bullishness on the crypto market, we believe that BTC is facing a good opportunity for medium to long-term allocation, and one can cautiously increase long positions in a step-by-step manner.Funds: Over $3.2 Billion Outflow from BTC Spot ETF Channels, Directly Causing the Decline
Accompanying the cooling of the "Trump trade" sentiment, the inflow of funds into the crypto market in February has slowed down significantly. This slowdown in inflow has repeatedly interacted with the price decline, ultimately leading to BTC breaking below the $96,000 level and plummeting in the last week of February. The scale of fund inflows in February has dropped sharply to $2.111 billion.
Crypto Market Fund Flow Statistics (Daily)
Looking into the internal classification of funds, EMC Labs found a divergence in attitudes between stablecoin funds and BTC Spot ETF channel funds. While the stablecoin channel saw inflows of $5.3 billion for the whole month, the ETF channel saw outflows as high as $3.249 billion.
Crypto Market Fund Flow Statistics (Monthly)
In previous reports, we have pointed out that the BTC Spot ETF has already taken control of the medium to short-term pricing power of BTC, and therefore BTC's price movements have shown a high correlation with the US stock market. This month, the outflow of over $3.2 billion from the BTC Spot ETF channel has become the most direct external cause of the decline, setting a record for the largest single-month sell-off since its listing. The subsequent trajectory of BTC will also mainly depend on the improvement of US economic expectations and the inflow of funds into the BTC ETF Spot channel.Second Wave of Sell-off: Blood-stained Chips from Short Traders
Since the start of the second wave of sell-off in early October 2024, 1.12 million BTC chips have shifted from long holders to short holders. We see the second wave of sell-off as a necessary condition for the end of a bull market cycle, with the underlying logic being that when the scale of active BTC increases to a certain extent, it will drain liquidity, leading to the complete destruction of the upward trend. Examining the consolidation and sudden plunge in February, the long-holder group maintained an extremely restrained state, selling only 7,271 BTC. In fact, the existing long-holder group has long ignored the price range of the "Trump bottom" (between $89,000 and $110,000), choosing to hold and wait for the price to rise. In the last week of February, the blood-stained chips came from the short-holder group. According to on-chain data analysis, the short-holder group held firm until February 24th, and the breach occurred on the 25th, with the on-chain short-holder group alone realizing $255 million in losses that day. This was the second largest loss day of the current cycle, second only to August 5th, 2024 (on-chain loss of $362 million). Historically, the market has often seen a cyclical bottom after the short-holder group experiences similar large-scale losses.
On-chain Loss Statistics of Long and Short Holder Groups
In-depth on-chain analysis shows that since February 24th, the BTC distributed in the $78,000 to $89,000 range has increased by 564,920.06 BTC, while the BTC distributed in the "Trump bottom" range ($89,000 to $110,000) has decreased by 412,875.03 BTC.
BTC Price Distribution Statistics
The "Trump bottom" range was forged between last November and this February, and the holders in this range are typical short-holder groups. The sell-off of blood-stained chips by the short-holder group, in an attempt to construct a medium-term bottom, has also solidified the $73,000 to $89,000 range where there is relatively less chips.Conclusion
In the January report, we emphasized that "the biggest external uncertainty comes from the chain reaction formed by the expectations of rate cuts and liquidity supply after the implementation of Trump's economic policies, and if the liquidity flow is constrained, the volatility will rise sharply." This concern has now become a reality. According to our previous analysis, the sell-off of blood-stained chips came from the short-holder group, while the long-holders have quietly slowed down their sell-offs and are holding to wait for the price to rise. EMC Labs judges that the current bull market is only in a consolidation phase, not a bear market reversal. We believe that the largest BTC pullback event of this cycle in February was caused by the massive outflow of BTC Spot ETF funds due to the US stock market's repricing of "economic recession expectations" at historical highs, and the turning point will also come from the turnaround of US stock market expectations and a trend rebound. The internal structure is relatively stable, and BTC and the crypto market are still operating within the cycle, with the short-term price decline presenting a good opportunity for medium to long-term allocation. What needs to be observed cautiously is the trajectory of the US macroeconomy, market expectations, and the Federal Reserve's attitude towards restarting rate cuts.
EMC Labs (Emerging Crypto Lab) was founded in April 2023 by crypto asset investors and data scientists. It focuses on blockchain industry research and Crypto secondary market investment, with industry foresight, insights and data mining as its core competencies, committed to participating in the thriving blockchain industry through research and investment, and promoting blockchain and crypto assets to bring benefits to humanity.
For more information, please visit: https://www.emc.fund
