Expectations of an economic downturn in the United States increase, Bitcoin suffers a heavy blow but welcomes allocation opportunities

The global macro financial situation, especially in the US market, has recently undergone a rapid and dramatic shift.

U.S. inflation data rises, consumer confidence falls to a 15-month low, prompting traders to start pricing in a potential economic recession, leading the three major U.S. stock indices to quickly drop near the 120-day moving average.

Funds are beginning to seek refuge, the yield on the 10-year U.S. Treasury bonds is rapidly declining, and gold prices are also showing signs of possibly peaking.

Affected by the U.S. stock market, Bitcoin, which had been building momentum, experienced a significant drop in the last week of February, suffering the largest retracement and weekly loss of this cycle.

Analysis suggests that this round of market movement is essentially a reversion of the previous "Trump trade" pricing. Considering that U.S. policies may self-adjust, as well as the medium to long-term outlook of the crypto market, Bitcoin may currently be facing a good opportunity for medium to long-term positioning. Investors can consider gradually accumulating positions to go long on a cautious basis.

Macroeconomics: Economic recession expectations drive the market down, short-term pressures may continue.

The economic and employment data released by the U.S. government in February, along with the chaos caused by Trump's tariff policies, have become two core factors recently influencing the trends in the macro financial and cryptocurrency markets.

On February 7, the U.S. Bureau of Labor Statistics released core employment data showing that the seasonally adjusted non-farm payrolls increased by only 143,000 in January, far below the expected 170,000. The unemployment rate stands at 4%, slightly lower than the expected 4.1%. The significant slowdown in non-farm payroll growth has heightened market concerns about a possible recession in the U.S. economy.

The CPI data released on February 12 showed that the January CPI month-on-month rate reached 0.5%, far exceeding the expected 0.3%, and also higher than the 0.4% in December of last year, pushing the annual rate to 3%, which is above the expected 2.9%. This marks the third consecutive month of rebound in U.S. inflation data, reinforcing the market's expectations that the Federal Reserve may postpone the timing of interest rate cuts. Even with signs of economic recession, it is difficult to prompt the Federal Reserve to change its decision.

On February 21, the final value of the U.S. Consumer Confidence Index for February released by the University of Michigan was 64.7, down from the initial value of 67.8, reaching the lowest point in 15 months. The continued weakness in consumer confidence is bound to impact the corporate level.

This series of negative data ultimately destroyed market confidence. On that day, all three major U.S. stock indexes experienced significant declines. In the following week, the U.S. stock market continued to plummet, erasing all gains of the month and continuing to decline. The Nasdaq index fell 3.97% for the month, the Dow Jones Industrial Average dropped 1.58% for the month, and the S&P 500 index decreased by 1.42% for the month, with the Russell 2000 index, representing small and medium-sized enterprises, plummeting by 5.45%. Both the Nasdaq and the S&P 500 indexes fell below the 120-day moving average.

For traders, the persistent rebound of inflation, the potential deterioration of the employment situation, and the shadow of recession looming again make reducing long positions possibly the best choice at present.

In addition to the worsening economic and employment data, Trump's erratic tariff policy has also intensified market confusion and pessimism. In January, Trump signed a memorandum on the "America First Trade Policy," and subsequently announced tariffs on goods from countries such as Mexico, Canada, and China, repeatedly adjusting the implementation timeline. This uncertainty in policy has become another important factor driving inflation higher, exceeding market expectations and further deepening traders' pessimism.

The only factor that could have a positive impact on inflation and interest rate cuts, the "Russia-Ukraine negotiations," made steady progress for most of February. However, a dramatic conflict between the two countries' leaders at a White House press conference at the end of the month led to the collapse of a mineral agreement that was about to be signed. Leaders from European countries expressed support for Ukraine, and the divide between the U.S. and Europe may deepen further. What was originally thought to be the imminent conclusion of the "Russia-Ukraine war" has once again become uncertain, making it difficult to reach an end in the short term. This significantly undermines expectations that ending the war would increase oil production to reduce inflation.

Since November last year, the market has engaged in the "Trump trade" based on expectations of strong economic growth. Now, with poor employment data, persistent high inflation, and tariff policies exacerbating inflation expectations, the market's outlook has reversed, beginning to exit the "Trump trade" and instead pricing in "economic recession." According to this logic, the decline of the three major stock indices may just be the beginning.

Since mid-January, the yield on the 10-year U.S. Treasury bond has continued to decline, dropping from a peak of 4.809% to 4.210%. This significant change in the indicator, seen as a "pricing anchor", reflects a substantial downgrade in the capital market's expectations for an economic recession.

Accompanied by a rebound in inflation, signs of economic recession, and a significant drop in the stock market and 10-year Treasury yields, the market's expectations for the Federal Reserve to cut interest rates this year have increased again, with the anticipated number of cuts rising from 1 to 2. Technically, both the Nasdaq and the S&P 500 indices have fallen below the 120-day moving average. Given the current severe situation, the market has raised its expectations for rate cuts, and if there is no positive response, it may continue to decline in the short term.

Crypto Assets: The Trump Effect Wanes, Mid to Long-term Allocation Opportunities Emerge

In February, the opening price of Bitcoin was $102,414.05, the closing price was $84,293.73, the highest was $102,781.65, and the lowest was $78,167.81, with a decline of 17.69% for the month, a decrease of $18,113.53, and a volatility of 24.03%. The maximum decline from the peak reached 28.52%, setting the record for the largest drawdown in this cycle (since January 2023).

It is worth noting that the decline for the entire month was mainly concentrated in the last week, and the sharp drop in the short term caused the market to enter a state of extreme panic. Corresponding to the maximum decline of the cycle, the Fear and Greed Index fell to 10 points on February 27, the lowest point since this cycle, approaching the level of 6 points when a well-known project collapsed during the previous bear market phase.

From a technical perspective, the "Trump bottom" has been effectively broken, which resonates with the US stock market's pullback on the "Trump trade." The "first upward trend line" and "second upward trend line" that were previously focused on in this cycle have both been quickly breached in a short period of time. At the end of the month, Bitcoin's price closed near the 200-day moving average.

In addition to being linked to the US stock market, the significant cyclical decline in the crypto market this month is also related to negative events within the market.

On February 14, the president of a certain country promoted an emerging cryptocurrency on social media, triggering a speculative frenzy and driving its market value to soar to $4.5 billion. Subsequently, the creator withdrew funds from the trading pool, causing the coin price to plummet rapidly, resulting in heavy losses for investors.

On February 21, suspected hackers from a certain country exploited a technical vulnerability of a certain exchange, stealing over 400,000 ETH and stETH, with a total value exceeding 1.5 billion USD, making it the largest attack in cryptocurrency history in terms of USD.

On February 23, a certain contract platform was attacked, with stolen funds exceeding $49 million.

In addition, the unlocking of 11.2 million SOL tokens due to the bankruptcy liquidation of a certain cryptocurrency exchange on March 1 will amount to approximately $2 billion. The scale of unlocking accounts for 2.29% of the total issuance of SOL, driving the price of SOL to drop by more than 50% throughout the month in a weak market.

Analysis suggests that the largest decline in the cryptocurrency market in February was directly driven by the drop in U.S. stocks due to recession expectations, which can also be understood as a price correction from the "Trump trade." Theoretically, based on the magnitude of the drop in U.S. stocks, Bitcoin could fall to around $73,000 at its lowest. However, considering that the impact of the Trump administration on Bitcoin's fundamentals is significantly greater than that of U.S. stocks, the likelihood of reaching this theoretical low is relatively low. The current cycle is still ongoing, and based on the logic that U.S. policies may self-adjust and the long-term outlook for the cryptocurrency market is positive, Bitcoin may be ushering in a good opportunity for medium to long-term allocation. Investors can consider gradually building long positions on a cautious basis.

Capital Flow: Significant Outflow from Spot ETF Becomes Direct Cause of Decline

As Trump's trading sentiment cools, the inflow of funds into the crypto market in February has significantly slowed. This slowdown in inflow interacts with the price decline, ultimately leading to a sharp drop in the price of Bitcoin after a long period of consolidation around $96,000 in the last week of February. The inflow of funds in February has decreased significantly to $2.111 billion.

Further analysis of the flow of funds reveals a divergence between stablecoin funds and Bitcoin spot ETF funds. The stablecoin channel saw an inflow of $5.3 billion throughout the month, while the ETF channel experienced an outflow of as much as $3.249 billion.

Previous analyses have repeatedly pointed out that the Bitcoin spot ETF has already掌握了 the short- to medium-term pricing power of Bitcoin, thus the price trend of Bitcoin is highly correlated with the performance of the US stock market.

This month, the outflow from Bitcoin spot ETF channels exceeded $3.2 billion, becoming the most direct external reason for the decline and setting a record for the largest monthly sell-off since its listing. The future trend of Bitcoin mainly depends on the improvement of U.S. economic expectations and the inflow of funds back into the Bitcoin ETF spot channels.

Second Sell-off: Short-term Holders Become Main Selling Group

Since the second wave of selling started on the second day of October 2024, approximately 1.12 million Bitcoins have been transferred from long-term holders to short-term holders. The second wave of selling is seen as a necessary condition for the end of a bull market cycle, with the underlying logic being that as the active supply of Bitcoins grows to a certain extent, it will exhaust liquidity, causing the upward trend to be completely broken.

Observing the consolidation and sharp decline in February, long-term holders maintained an extremely restrained attitude, only selling 7,271 coins. In fact, existing long-term holders are no longer focused on the "Trump Bottom" price range ($89,000~$110,000), choosing to hold their coins and wait for a rise.

In the last week of February, the transferred loss chips mainly came from short-term holders. On-chain data analysis shows that short-term holders were still holding firm until February 24, but a collapse occurred on the 25th, with short-term holders on-chain realizing losses of $255 million that day alone. This was the second largest loss day in this cycle, second only to August 5, 2024 (on-chain loss of $362 million). Historical experience indicates that after short-term holders experience large losses of this scale, the market often welcomes a phase bottom.

In-depth on-chain analysis reveals that since February 24, the number of Bitcoin in the $78,000 to $89,000 range has increased by 564,920.06 coins, while the number of Bitcoin in the "Trump bottom" range ($89,000 to $110,000) has decreased by 412,875.03 coins.

The "Trump bottom" range was mainly formed from November last year to February this year, during which the holders of coins were mostly typical short-term holders. The selling of losing chips by short-term holders aimed to construct a mid-term bottom, while also consolidating the relatively scarce range of 73000~89000.

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