- Crypto late cycle selling came amid broader risk-off sentiment, pushing bitcoin c.13% lower
- Mining profitability is now squeezed, raising the risk of another miner-driven selling
- However, valuation metrics and options positions suggest capitulation in the near-term
- Kevin Warsh faces constraints in balancing hawkish stance and tighter balance sheets
Related Insights
The familiar chills of winter. We cautioned a couple of months back in The Bitcoin Butterfly Effect (published 26 Nov 2025) that we were facing crypto end-cycle dynamics, where the Bitcoin “halving catalyst has not propelled the cryptocurrency bull market beyond 18 months”. Since then, Bitcoin experienced two distinct drawdowns; the first in late January being predominantly retail led, sparked by rising geopolitical tensions, policy uncertainty, and interest rate ambiguity, while the second occurred on 5 February, when institutional investors turned from net buyers to net sellers on broader risk-off sentiments around AI bubbles and emerging signs of labour market weakness. The convergence of institutional selling with residual retail weakness drove bitcoin down c.13% in a single session, breaking key technical support around USD69k (the previous cycles ATH in 2021). Sentiment deteriorated further following comments from Treasury Secretary Scott Bessent that the Treasury lacks authority to intervene in the event of a cryptocurrency market crash.
Bottom fishers preparing their nets. Despite the severity of the selloff, underlying market signals point more toward capitulation, compared to the typical bear market downtrends in the July periods following declines from ATHs of 2017 and 2021. Meanwhile, long-term valuation metrics suggests that valuations have capitulated to levels that would make bargain hunters sit up and take notice. MVRV (market value to realized value, which estimates how much Bitcoin holders as a cohort are in the money) and the Mayer Multiple (the ratio of its current price to its 200-day simple moving average) now sit at levels historically associated with oversold conditions. Such conditions are characteristic of markets transitioning from capitulation toward a bottoming process, even if near term volatility remains elevated.
Cautious bullishness. Derivatives positioning reinforces this interpretation. A comparison of January and February options expirations shows that bullishness has largely been rolled forward with materially more downside protection. January positioning was skewed toward concentrated upside with limited hedging, whereas February shows more balance, consistent with risk recalibration.
Mind the miners. That said, near term fragilities exist, particularly through mining profitability stress and thinning liquidity conditions. The break below USD70k will compress mining profitability, pushing a growing share of higher cost miners into loss making territory and potential ceasing of operations. This could exacerbate a thinning liquidity environment such that even modest miner driven selling could amplify price moves and trigger secondary liquidations. Historically, however, episodes of miner stress often function as clearing mechanisms. Marginal operators exit, hash-rate adjusts, and network economics reset, ultimately strengthening the system’s long term foundation. While miner capitulation poses a short term risk, it has frequently marked the latter stages of massive drawdowns, rather than the beginning of prolonged weakness.
Is the Warsh of the selldown over? No doubt, the hawkish reputation of the new Fed chair appointee Kevin Warsh has recalibrated risk asset valuations across the board, with markets pointing to his prior advocacy for smaller Fed balance sheets as a signpost for Fed policy under his regime. Logically then, Bitcoin – heralded as a key monetary debasement trade – loses its shine if the Fed is more resistant to “money printing”. However, we believe that markets might be currently hawking an exaggerated narrative of Warsh’s “hawkish” reputation. Notably, he had criticised the Powell-led Fed for underestimating plumbing risks during the last repo crisis in 2019, suggesting that he is acutely aware of risks of overly aggressive balance-sheet tightening. Moreover, the current Fed had also unanimously agreed to stop QT in December 2025 on evidence of stress and elevated volatility in money markets, maintaining a regime of ample reserves to precisely avoid the same short-term funding stresses last seen in the crisis that Warsh criticised. As such, unlike what the market expects, the term “higher-for-longer” may be more applicable to the size of the Fed balance sheet than the path of interest rates.
Oversold, not over. In conclusion, bitcoin appears oversold, driven by disproportionately negative sentiment surrounding the Fed nominee decision and expectations of a rate pause, compounded by the simultaneous rout in gold and silver. From a macro perspective, the Federal Reserve is increasingly constrained in its ability to pursue both a hawkish policy stance and aggressive balance sheet reduction, which portends less challenging than expected headwinds for bitcoin. That said, the recent episodes of sharp selling could increase pressure on miners to liquidate holdings in the near term. Nevertheless, these selldowns should be seen as “glass half full” scenarios for investors who have persistently lamented that the ownership of Bitcoin has been prohibitively expensive for much of the last two years. Such opportunities to build an allocation at a bargain also comes with four-year cycles – the time to sow might just be lurking around the corner.
Table 1: Markets appear more bearish than normal
Source: Bloomberg, DBS
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