Short squeeze meets macroeconomic recovery: Analyzing the drivers and risks behind today's crypto market rebound

As of February 25, 2026, the crypto market has experienced a significant broad rally. According to Gate Market data, Bitcoin (BTC) price increased by +4.61% in the past 24 hours, trading at $68,561.8, with a trading volume of $1.61 billion, and its market cap rebounded to $1.31 trillion. Ethereum (ETH) performed even stronger, rising by +8.37% to $2,074.79. This rebound is not an isolated event but the result of a confluence of macro expectations adjustment, derivatives market restructuring, and specific ecosystem positive news. This article will objectively analyze the causal chain behind this rally and examine the authenticity and sustainability of its narrative.

Event Overview: V-Shaped Reversal and Market Cap Recovery

From February 25 to 26, the total global cryptocurrency market cap surged by approximately $85 billion within 24 hours, returning above $2.33 trillion. The rally exhibited typical “broad-based” characteristics: Bitcoin, as the market indicator, firmly held above $68,000, driving a revaluation of the entire market. Ethereum regained the $2,000 psychological level, while some altcoins like Polkadot (DOT) gained over 20%. Market sentiment quickly recovered from last week’s “extreme fear” zone, with the Fear & Greed Index moving away from lows.

Price analysis. Data source: TradingView

Background and Timeline: From Continuous Declines to Volume Breakouts

This rally occurred after a prior deep market correction. Looking back at last week (the week of February 23), the crypto market was still in a bearish phase. Gate Ventures’ weekly review noted that Bitcoin spot ETFs experienced record net outflows at that time, with market sentiment index dropping to 5, indicating extreme fear.

The turning point appeared between February 25 and 26. After digesting previous negative factors, buying interest began to strengthen near key support levels. On the morning of February 26, Bitcoin’s price started around $65,000, and with increased trading volume, quickly broke through $68,000, triggering a chain reaction.

Bitcoin price analysis. Data source: Gate

Data and Structural Analysis: Liquidation Cascades and Capital Reflows

From on-chain and derivatives data, the initial driver of this rally was technical oversold recovery and subsequent “short squeeze.”

• Derivatives Liquidations: According to data from Coinglass and others, during the rapid price rise, approximately $576 million in leveraged positions were liquidated across the network. Over 80% of these were short positions, with nearly $194 million in Bitcoin-related short liquidations alone. This massive forced liquidation created a typical “liquidation waterfall,” and the short covering behavior further accelerated the price increase, forming a positive feedback loop.
• Spot ETF Capital Flows: Unlike the short-term game in derivatives markets, spot ETF flows reflect institutional sentiment. Data shows that on the day of the rebound, several spot Bitcoin ETFs ended their previous continuous outflows, recording about $257.7 million in net inflows. This was the first large-scale capital inflow since mid-February, providing structural buying support for the rebound.
• Market Breadth: The rally was not limited to major coins. Data indicates that only a few of the top 100 cryptocurrencies declined, with tokens like Polkadot and Filecoin leading gains, suggesting liquidity spillover into small- and mid-cap altcoins and higher market participation.

Public Opinion and Narrative Analysis: Macro Resonance and Event-Driven Factors

Market interpretations of “why the rally happened” mainly fall into macro and micro levels, but there are differing viewpoints.

• Macro Sentiment Recovery (Mainstream View): Most analysts attribute this rebound to a phase of macro risk appetite improvement. After Nvidia’s strong earnings, US tech stocks rose in tandem, boosting sentiment for crypto assets correlated with tech. Additionally, concerns over Trump administration tariffs and Jane Street-related legal issues, which had previously weighed on the market, were gradually digested as the situation clarified, viewed as short-term negative factors exhausted.
• Specific Narrative Catalysts (Controversial): The strong performance of certain tokens sparked discussions about “event-driven” factors. For example, DOT’s over 20% single-day increase coincided with its network planning to implement an annual issuance halving on March 14. Market opinions diverge: some see this as an early pricing of the “halving” deflationary narrative; others argue that the entire altcoin market was broadly rising, and DOT’s lead was more driven by speculative buying fueled by market sentiment rather than fundamental changes.

Examining the Narrative’s Authenticity

The facts are: Nvidia’s earnings exceeded expectations, US stocks rose; BTC ETFs ended net outflows; over $500 million in contracts were liquidated; DOT will adjust its issuance in mid-March.

Opinions are divided: one side believes macro stabilization is the main reason, and the rebound has a sustainable basis; the other side sees this as merely technical correction after oversold conditions, lacking new long-term narratives.

The key question is: Is this rally a “trap” in a bear market rebound, or the start of a trend reversal? Currently, there is insufficient evidence that new large-scale capital has entered. Whether ETF inflows can sustain will be crucial to confirming this.

Industry Impact Analysis

This rally has produced multi-dimensional immediate effects on the industry:

• Leverage Reset: The massive liquidations cleared out excessive leverage accumulated earlier, especially highly aligned short positions, removing hidden risks for future healthy development.
• Institutional Interest Validation: Despite prior ETF outflows, the capital inflow on the rebound day proves that even in a bearish phase, institutions still have demand for regulated BTC exposure.
• Altcoin Narrative Activation: Changes in supply dynamics, such as DOT’s halving, re-enter investor focus, potentially leading to revaluation of similar deflationary or supply-adjusted projects. Additionally, Circle’s strong earnings highlight the profitability and resilience of stablecoins as industry infrastructure, boosting confidence in crypto business models.

Multi-Scenario Evolution

Based on current logic, three possible future scenarios can be outlined, with a clear distinction between facts and assumptions:

Scenario 1: Trend Continuation (Neutral to Optimistic)

• Conditions: BTC spot ETF maintains net inflow or slight outflow over the next few trading days; price stabilizes above $68,000 and attempts to break through $70,000; macro environment remains free of unexpected negative news.
• Outlook: This would confirm institutional buying persistence, attract long-side traders, and create a positive cycle of “rebound → profit-taking → capital inflow,” targeting around $72,000 resistance.

Scenario 2: Range-bound Fluctuation (Higher Probability)

• Conditions: Macro sentiment remains stable but no further positive catalysts; ETF inflows slow or turn into small outflows; overhead resistance and trapped positions exert pressure.
• Outlook: After a rapid rebound, the market needs to digest profit-taking and trapped positions, likely oscillating between $65,000 and $70,000, waiting for new catalysts.

Scenario 3: Rebound Fails (Caution Needed)

• Conditions: Sudden deterioration of macro environment (e.g., geopolitical conflicts, unexpected hawkish signals from Fed); regulatory black swan events; trading volume diminishes rapidly, unable to break key resistance.
• Outlook: If price falls below $65,000 support again, this rebound could be a “false move” in a downtrend, with potential retests of $63,000 or lower, and liquidation pressure shifting from shorts to longs’ stop-losses.

Conclusion

The February 26 crypto rally results from a combination of oversold technical correction, derivatives market restructuring, and macro sentiment recovery. Over $500 million in short liquidations provided initial momentum, while ETF capital inflows added structural support. Although some assets like DOT show event-driven features, the core of this rally should be viewed as a valuation correction after extreme fear. Investors should focus not only on short-term price movements but also on the sustainability of ETF flows and macroeconomic trends, which will be key variables in determining the future trajectory.