Written by: Tanay Ved
Translated by: Chopper, Foresight News
TL;DR
In February, due to rising risk aversion and liquidity shortages, the correction in crypto assets widened, making the market more susceptible to shocks;
Weakening market demand, negative Coinbase premium index, ETF capital outflows, and slowing stablecoin growth indicate declining institutional participation;
During the valuation reshaping process, structural trends continue to advance, tokenization activities increase, and on-chain infrastructure deeply integrates with traditional markets.
The crypto industry in February continued recent trends, with fundamentals overshadowed by a weak market sentiment, leaving assets caught between macro changes. This article reviews the market and on-chain dynamics affecting crypto assets in February 2026.
Market Performance
The month began with intense volatility. During the sell-off on February 5–6, Bitcoin briefly fell below $61,000, marking one of the worst start-of-year performances in over a decade. The entire crypto market has been in a correction since its October 2025 peak: Bitcoin has fallen nearly 50%, while Ethereum and Solana have also retreated to pre-2024 spot ETF approval levels.
Meanwhile, asset performance has diverged sharply: gold rose 15% this year, supported by safe-haven and non-dollar value storage needs amid geopolitical and tariff uncertainties. In a risk-averse environment, crypto assets behave more like high-beta tech stocks, falling alongside growth stocks, reacting strongly to the rapid evolution of AI waves and associated risks.
The weakness in crypto assets appears more as a result of risk appetite decline, liquidity drought, and ongoing deleveraging rather than a fundamental collapse.
Capital Flows and Withdrawals
Behind the correction, core demand and liquidity deteriorated simultaneously. The Coinbase premium index (measuring the spread between BTC/USD on Coinbase and BTC/USDT on Binance) is a key indicator of demand in the US spot market. Since November 2025, it has remained negative and deepened in February, indicating persistent selling pressure and lack of institutional buying. Recently, the premium has begun to recover, suggesting the most intense phase of US spot selling may be over, but demand remains subdued.
Combined with net capital flows into Bitcoin ETFs, these two indicators are highly synchronized. They measure US institutional demand from different angles and both fell below zero almost simultaneously. During each downturn, the premium tends to decline before capital flows do, as spot prices react quickly while ETF redemptions take longer to manifest. So far this year, net outflows from spot Bitcoin ETFs have exceeded $4 billion, reversing a significant portion of last year's inflows.
Liquidity and Trading Volume
Market liquidity remains fragile. The depth of Bitcoin spot order books on major exchanges (within ±2%) dropped from about $40–50 million in August–October 2025 to around $15–25 million, and has stayed in that range. Liquidity further shrank in February, amplifying price volatility.
Stablecoin supply growth has also slowed significantly since December. USDT and USDC combined market cap hovers around $260 billion, indicating new capital inflow has stalled rather than exited entirely. Overall, institutional demand retreat, insufficient order book depth, and slowing stablecoin growth suggest conditions for a sustained recovery are still incomplete.
On February 10 and 5, trading volumes in spot, futures, and options surged sharply. Bitcoin’s total trading volume reached $244 billion and $235 billion respectively, with futures dominating at $177 billion on February 5. Despite market turbulence comparable to October, spot trading volume was slightly lower, consistent with low order book liquidity causing increased price swings. Historically, such high-volume sell-offs often coincide with the end of forced liquidations, implying the most intense phase of this decline may be nearing its end.
Hyperliquid’s RWA Perpetual Contracts
Meanwhile, the momentum of real-world asset tokenization and on-chain finance integrating with traditional finance continues to strengthen. Hyperliquid is a key beneficiary, with its on-chain perpetual contracts expanding from crypto assets to commodities, stocks, and the Nasdaq 100 index.
This expansion is driven by the HIP-3 protocol upgrade, which allows permissionless creation of perpetual markets for any asset, complete with oracles and fee structures.
While Bitcoin and Ethereum still dominate open interest, HIP-3 markets are steadily increasing their share within the platform. On February 5, HIP-3 perpetual contracts peaked at about $4.6 billion, mainly driven by commodities, with a single-day volume of $3.8 billion, and over $30 billion accumulated since January. Gold and silver are particularly prominent, with silver trading volume reaching $3.4 billion.
Open interest (OI) is also rising in tandem. Total open contracts in HIP-3 markets grew from about $29 million in early January to nearly $97.5 million on January 29, then declined to around $83 million by the end of February. This indicates ongoing demand for on-chain exposure to commodities, stocks, and indices.
Bitcoin Enters the “Value Zone”
Bitcoin’s recent decline has approached its realized price (around $55,000), which is the average on-chain cost basis of all tokens. Historically, during cyclical lows, Bitcoin often trades near or below its realized price, signaling a shift from euphoria to capitulation and eventually accumulation.
Meanwhile, valuation metrics like MVRV (Market Value to Realized Value) have compressed to historically low levels, though not yet reaching the extreme lows seen in previous bear markets. These signals suggest the market has shed many bubbles and is gradually entering a value zone.
Despite the price correction, multiple trends continue to push crypto assets toward mainstream financial infrastructure. Hyperliquid’s HIP-3 demonstrates how crypto trading platforms are increasingly used for traditional asset trading. The introduction of tokenized funds like BlackRock’s BUIDL on Uniswap and protocols like Apollo’s acquisition of MORPHO tokens highlight institutional efforts to integrate DeFi liquidity and governance into their workflows.
Meanwhile, leading DeFi protocols such as Aave and Uniswap are gradually shifting toward clearer token holder interests and value accrual, moving from narrative and governance focus to cash-flow assets. On the traditional finance side, CME’s launch of 24/7 crypto futures and the CFTC’s more positive stance on prediction markets indicate regulators and policymakers are adapting to the around-the-clock crypto market.
Conclusion
February’s correction resembles a risk environment stress test on capital and liquidity rather than a fundamental collapse. Crypto assets remain highly sensitive to liquidity and growth dynamics, but their role in market infrastructure, institutional portfolios, and on-chain integration continues to deepen.
In the short term, markets may continue to fluctuate, but progress in legislation like the CLARITY Act and a reversal in capital flows will be key catalysts for sustained demand recovery.
