Author: Tanay Ved

Translated by: Chopper, Foresight News

TL;DR

• In February, due to heightened risk aversion and liquidity issues, the adjustment of crypto assets widened, making the market more susceptible to shocks;
• Weakening market demand, with a negative Coinbase premium index, outflows of ETF funds, and slowing stablecoin growth, indicating a decline in institutional participation;
• During the valuation reshaping process, structural trends continue to advance, tokenization activities are increasing, and on-chain infrastructure is deeply integrating with traditional markets.

The crypto industry in February continued recent trends, with fundamental progress overshadowed by a sluggish market, leaving assets in a dilemma amid changes in the macro environment. This article will review the market and on-chain dynamics affecting crypto assets in February 2026.

Market Performance

February started with significant volatility. During the sell-off from February 5 to 6, Bitcoin briefly fell below $61,000, marking one of the worst start-of-year performances for crypto assets in over a decade. The entire crypto asset market has continuously adjusted from the peak in October 2025: the price of Bitcoin has dropped nearly half, and Ethereum and Solana have also fallen back to levels seen before the approval of the spot ETF in 2024.

Meanwhile, asset trends have significantly diverged: gold has risen by 15% this year, supported by safe-haven demand and the need for non-dollar value storage amid geopolitical and tariff uncertainties. In a risk-averse environment, crypto assets have traded more like high Beta tech stocks, falling alongside growth stocks, with the market reacting intensely to the rapidly evolving AI wave and impact risks.

The weakness of crypto assets seems more a result of a retreat in risk appetite, low liquidity, and ongoing deleveraging rather than a collapse of fundamentals.

Withdrawal of Capital Inflows

Behind the pullback, core demand and liquidity have deteriorated simultaneously. The Coinbase premium index (measuring the price difference between BTC/USD on Coinbase and BTC/USDT on Binance) is an important indicator of demand in the U.S. spot market. This index has remained negative since November 2025 and further deepened in February, indicating continued selling pressure in the U.S. market and a lack of institutional buying. Recent premium repairs suggest that the most intense phase of selling in the U.S. spot market may have passed, but demand remains sluggish.

Overlaying this with the net flow of funds into Bitcoin ETFs shows a high degree of synchronization between the two. These two indicators measure U.S. institutional demand from different angles and both collapsed below zero almost simultaneously. In each downturn, the premium often declines before the capital flow, as spot prices react quickly while ETF redemptions take longer to manifest. So far this year, there has been a net outflow of over $4 billion from spot Bitcoin ETFs, reversing a significant portion of last year's inflows.

Thin Liquidity and Volatile Trading Volume

Market liquidity remains weak. The depth of the Bitcoin spot order book on mainstream exchanges (liquidity within ±2% range) has plummeted from about $40 to $50 million during August to October 2025, to between $15 million and $25 million. Liquidity further contracted in February, magnifying price volatility.

The growth rate of stablecoin supply has also noticeably slowed since December. The total market capitalization of USDT and USDC has hovered around $260 billion, indicating a stagnation of new capital inflows rather than an overall exit of funds. In summary, the withdrawal of institutional demand, insufficient order book depth, and slowing growth of stablecoins means that the conditions for sustained recovery are still incomplete.

On February 10 and 5, there was a significant surge in trading volume across spot, futures, and options. The total trading volume of Bitcoin reached $244 billion and $235 billion respectively, with futures trading volume peaking at $177 billion on February 5, dominating the market. Although the level of market turmoil was comparable to October, spot trading volume was slightly lower than in October, which corresponds with the intensified price fluctuations due to low order book liquidity. Historically, such high-volume sell-offs often coincide with the end of forced liquidations, indicating that the most intense phase of this downturn may soon be over.

RWA Perpetual Contracts on Hyperliquid

Meanwhile, the momentum of tokenizing real assets and integrating on-chain finance with traditional finance continues to strengthen. Hyperliquid is one of the main beneficiaries, as its on-chain perpetual contracts extend from crypto assets to commodities, stocks, and Nasdaq 100 index products.

This expansion is aided by the HIP-3 protocol upgrade, which allows for the creation of perpetual markets for any asset without permission, featuring built-in oracles and fee structures.

Although Bitcoin and Ethereum remain the assets with the largest open interest, the share of the HIP-3 market within the platform continues to grow. On February 5, the total amount of HIP-3 perpetual contracts peaked at about $4.6 billion, primarily driven by commodities, with a single-day volume reaching $3.8 billion, accumulating over $30 billion since January. Gold and silver stood out, with silver trading volume peaking at $3.4 billion.

Open interest (OI) also grew simultaneously. The total open interest of the HIP-3 market increased from around $290 million at the beginning of January to nearly $975 million at the peak on January 29, before retreating to around $830 million by the end of February. This indicates a sustained growing demand for on-chain exposure to commodities, stocks, and indices.

Bitcoin Enters "Value Range"

Bitcoin's recent decline has approached the realized price (currently around $55,000), which is the average on-chain holding cost of all tokens. Historically, Bitcoin often trades near or below the realized price at cyclical lows, marking a transition from euphoria to capitulation, and eventually into an accumulation phase.

At the same time, valuation indicators such as MVRV (market value relative to total holding cost of holders) have compressed to historically undervalued ranges but have not yet reached the extreme levels seen at the bottoms of previous bear markets. These signals suggest that the market has squeezed out a lot of excess, gradually entering a value range.

Despite the price adjustment, several trends are still driving the integration of crypto assets into mainstream financial infrastructures. Hyperliquid's HIP-3 showcases how cryptocurrency trading platforms are increasingly used to trade traditional assets. BlackRock’s introduction of its tokenized fund BUIDL to Uniswap, along with Apollo's acquisition of the MORPHO token protocol, similarly highlights how institutions are integrating DeFi liquidity and governance into their workflows.

Additionally, leading DeFi protocols like Aave and Uniswap are progressively moving toward clearer benefits for token holders and value accumulation, transitioning from a pure narrative and governance-driven approach to cash flow-oriented assets. On the traditional finance side, CME's launch of 24/7 crypto futures trading and CFTC's more positive stance on prediction markets indicate that regulatory platforms and policymakers are adapting to the 24/7 operational structure of the crypto market.

Conclusion

The February pullback seems more like a stress test for funds and liquidity under a risk-averse environment rather than a collapse of fundamentals. Crypto assets are still traded as liquidity-sensitive and growth-linked assets, but their role in market infrastructure, institutional portfolios, and on-chain integration is continuously deepening.

The short-term market may continue to fluctuate, but the progress of the "CLARITY Act" and any reversal in capital flows will be key catalysts in determining whether demand can sustain a recovery.