Crypto enters the week still digesting the fallout from lastweek’s sharp dislocation, an episode that served as a stark reminder that Bitcoin ($69,600) continues to set the tone for the entire market. When stress hit correlations rose rapidly, liquidity fragmented and diversification within crypto largely disappeared. The result was a violent, indiscriminate sell-off that looked less like organic crypto capitulation and more like a broader cross-market deleveraging event with Bitcoin acting as a readily tradable outlet for risk reduction.
What stood out most was where the stress resurfaced. In Bitcoin, selling pressure was concentrated off-chain through ETFs, derivatives and centralised venues, while Ethereum ($2,040) absorbed much of the strain on-chain, with a sharp surge in network fees and liquidation activity across DeFi protocols. That split suggests the trigger was not a breakdown in crypto-native fundamentals but forced selling tied to leverage, margin mechanics, and cross-asset positioning.
The early-February decline ranked among the most extreme in Bitcoin’s history, a type of move that rarely occurs without forced liquidation. Price ultimately found support at levels that have historically mattered across cycles, including long-term valuation and cost-of-production metrics. That defence does not guarantee a durable bottom, but it does suggest the move was more consistent with a clearing event than the start of a fresh slow-burning downtrend.
Trading volumes in spot Bitcoin ETFs surged to record levels alongside unusually heavy options turnover. On one hand, this demonstrated that institutional access points provided liquidity during stress. On the other, it highlighted a newer vulnerability: the importation of traditional margin and leverage dynamics into crypto through ETF structures. Institutionalisation reduces some risks but it also introduces new failure modes, particularly when volatility spikes and positions are crowded.
Beyond crypto the macro context helps explain the speed and intensity of the unwind. A rapid reversal in precious metals, including a sharp drop in silver coincided with a broader reduction in leverage tied to the unwinding of yen-funded carry trades. In that environment investors sold what they could not necessarily what they wanted to. At the same time gold pushed to fresh highs reinforcing the idea that capital was rotating toward perceived havens rather than exiting markets altogether.
Despite the drawdown stablecoin supply remained resilient and demand for tokenised RWAs (including gold-backed products) continued to grow. Speaking of Gold ($5,000/oz), Tether revealed their holdings have surpassed $23 billion with purchases now outpacing those of nation states. A striking signal that demand for tokenised, hard-asset collateral is increasingly being driven by private, market-based actors rather than sovereign balance sheets.
This week an area to watch closely is the persistence of negative funding rates across perps, particularly in Ethereum and higher-beta assets. If funding remains deeply negative, basis trades and yield-bearing strategies face negative carry, which can become a secondary source of pressure if it persists. This isn’t a crisis, but it is an important second-order risk that will shape how quickly the market can recover.