The dual themes of risk repricing and capital selectivity

Analysis by Maximiliaan Michielsen and Stephen Coltman, with additional contributions from Eliezer Ndinga and Adrian Fritz.

February extended January’s macro-driven repricing and positioning reset. The drawdown was driven by tighter conditions, cross-asset de-risking, and the clearing of speculative excess for Bitcoin and digital assets. Crucially, this adjustment has occurred without systemic stress, reinforcing the view that recent weakness reflects a corrective phase rather than a breakdown of Bitcoin's long-term thesis as an emerging, long-duration store-of-value asset.

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What happened in February?

February extended one of the more persistent corrective phases of the current cycle. After a sharp risk-off move, Bitcoin transitioned into consolidation, stabilizing largely between $60,000–$70,000, but is now on track to post its fifth consecutive negative monthly return, a streak last seen in late 2018. 

The comparison, however, underscores how much the market has matured. In the previous era, Bitcoin fell roughly by 80% from its high, with annualized volatility exceeding 100%. Today, we sit at around 45% below peak, with one-year annualized volatility near 40%. While the duration of weakness is notable, the magnitude and volatility profile are materially lower, reinforcing the view that this is a corrective phase within a maturing regime rather than a return to past fragility.

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Importantly, macro dynamics are currently dominating price action despite industry-wide traction. Stablecoin supply continues to expand; Circle delivered strong earnings; prediction markets have surpassed $45 billion in volume year-to-date; and the Bitcoin Lightning Network is processing over $1 billion in monthly volume, extending Bitcoin’s utility as a value-transfer rail. 

In parallel, select protocols have continued to outperform on fundamentals. The divergence between price and underlying industry growth further supports the view that this episode doesn’t reflect structural deterioration. Nevertheless, Bitcoin continues to outperform the broader crypto market, which contracted by approximately $150 billion, reinforcing a “quality over breadth” regime.

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There are 5 reasons for the drawdown

February’s drawdown reflects convergence forces that amplified downside pressure. 

1) Macro backdrop: policy uncertainty, tariff risk, and geopolitical escalation

February’s weakness was driven by a deteriorating backdrop that sustained tight conditions and constrained risk appetite:

• Growth slowed: US Q4 Gross Domestic Product (GDP) decelerated to 1.4% annualized, well below consensus and sharply lower than 4.4% in Q3, signaling weakening momentum.
• Inflation remained sticky: Headline Personal Consumer Expenditures (PCE) hovered near 2.9% YoY, still above the Fed’s 2% target, limiting flexibility for near-term easing.
• Rates repricing: This combination reinforced a “higher-for-longer” stance, pushing expectations for the first rate cut toward mid-year. According to CME FedWatch¹, July has become the most likely window for the first cut.
• Policy uncertainty: A Supreme Court ruling restricting emergency tariff powers and newly announced up to 15% global tariffs reintroduced trade policy risk, adding volatility and reinforcing a cautious, risk-off environment.
• Geopolitical escalation: End-of-month strikes on Iran and regional escalation delivered a sharp but contained shock. Markets are pricing a relatively short conflict horizon, with policymakers aware that prolonged disruption, particularly around activity via the Strait of Hormuz, would tighten conditions and pressure already fragile growth expectations.

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2) Repricing of the innovation complex

As markets moved from a broad “AI benefits everything” narrative to a more selective assessment of winners and losers, high-growth software and innovation equities retraced meaningfully. While Bitcoin is neither a direct competitor to AI nor a legacy or obsolete technology, it nonetheless traded in line with the broader innovation complex during the risk-off phase.

The iShares Tech-Software exchange-traded fund (ETF) or “IGV” declined by more than 14% in February, while Bitcoin fell roughly 17%, with daily correlation rising above 60%. This alignment suggests that cross-asset risk reduction, rather than crypto-specific deterioration, was a dominant driver of price action.

Similar dynamics emerged in 2018–2019, when fintech stocks led the growth narrative, while Bitcoin underperformed alongside them before later re-emerging as a relative-value trade. Notably, that period also marked the last instance of a five-month consecutive drawdown streak.

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3) Leverage resets and shock absorptions

Crypto again acted as a liquidity shock absorber. Its 24/7 nature meant risk-off positioning is expressed immediately. This dynamic triggered a sharp but constructive deleveraging:

• $1.4 billion in futures long liquidations, roughly double those of shorts, as downside spot moves cascaded through derivatives markets.
• Futures open interest fell by $5 billion, compressing back toward pre-ETF-launch levels.
• Current open interest sits near $27 billion, down materially from October highs above $65 billion.

While this amplified short-term price moves, it reflects a positioning cleanse rather than fundamental stress. Excess leverage accumulated earlier in the cycle has been cleared, reducing market crowding and lowering downside fragility heading into the next phase.

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4) Jittery behavior from long-term Bitcoin holders

Flows amplified volatility but did not originate it. Global Bitcoin ETP outflows largely responded to price weakness rather than driving it, totaling approximately $450 million over the month, with US ETFs accounting for the bulk of the outflows.

Onchain data shows modest long-term holder redistribution. Long-term holder supply declined by roughly 67,000 BTC, worth around $5 billion, while the number of entities holding ≥1,000 BTC (around $66 million in current prices) fell by only 15, indicating that large-scale holders remain largely intact.

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5) Altcoin fragility and breadth compression

Apart from a few fundamentally sound assets, participation remains constrained outside of Bitcoin. As risk tolerance declined, altcoins underperformed, compressing market breadth and reinforcing Bitcoin’s relative resilience. This pattern is typical of corrective phases, where capital consolidates into higher-quality.

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What are the technicals telling us?

Derivatives and broader positioning

Funding rates remain depressed, and the basis has compressed sharply from October highs near 8% to below 5%, reflecting reduced leverage and limited incentive for institutions to re-engage aggressively.

In options markets, downside hedging persists below $60,000, but skew remains contained, and implied volatility has continued to decompress, more consistent with consolidation than renewed downside momentum. 

Max pain levels on Deribit add further context. Near-term expiries cluster around the mid-$60,000s, while later-quarter max pain trends closer to $75,000. This suggests short-term expiry gravity around current levels, with larger concentrations far above spot into quarter-end. Positioning remains slightly defensive, reinforcing a range-bound structure.

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Technical structure: defined range with clear inflection points

Price action has clarified a defined framework shaped by prior cycle highs and high-volume consolidation zones.

Key support zones

• $60,000–$65,000: structural range support: This region represents a high-volume consolidation node from 2024. Significant historical trading activity reinforces it as structural support, and it aligns closely with the all-time high of the 2021 cycle: both a technical and psychological level of importance. A sustained hold here preserves the broader consolidation thesis.
• $56,000–$58,000: long-term structural floor: This zone reflects the convergence of long-term cost-basis metrics and prior-cycle support. A sustained break below would materially weaken the structure and increase the probability of a deeper corrective phase.

Key resistance levels

• $68,000–$70,000: prior-cycle supply zone: This range corresponds to the 2021 all-time-high region. Overhead supply remains concentrated here, making it the first meaningful resistance band and an initial test of upside momentum.
• $72,000–$74,000: “Liberation Day” (April 2025) breakdown zone: Reclaiming this area would signal that the February breakdown has transitioned into stabilization rather than continued distribution.
• $80,000–$85,000: Trend confirmation zone: Sustained acceptance above $80,000 would indicate stabilization, while a decisive hold above $85,000 would suggest that the panic-driven phase has resolved and continuation is reasserting itself.

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Long-term valuation anchor back in focus

Bitcoin is trading near cycle lows, with evidence of long-term investors buying Bitcoin at a discount. Price is hovering around the aggregated investor cost basis and the 200-week moving average, a region where Bitcoin has historically traded less than 5% of the time. Past interactions with this zone have consistently preceded strong multi-year advances, as structure resets and longer-term capital re-enter.

With leverage reduced, derivatives markets cleaner, and long-term holders intact, current levels increasingly represent an attractive accumulation zone, even if near-term volatility persists.

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Footnotes: 

1. "CME FedWatch Tool," CME Group. Accessed March 2, 2026. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

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