EMC Labs February report: U.S. economic recession expects to rise again, BTC suffers a cyclical blow, and welcomes a good opportunity for medium and long-term configuration

Written by: 0xWeilan

The information, opinions and judgments mentioned in this report, such as market, projects, currencies, etc. are for reference only and do not constitute any investment advice.

The global macro finance, especially the United States, has undergone a rapid and dramatic turn.

U.S. inflation data rose, while consumer confidence fell to lows since May, causing traders to start pricing expectations for "U.S. recession", driving the three major U.S. stock indexes to quickly fall near the 120-day moving average.

Funds have launched a safe-haven operation, the yield on the US 10-year Treasury bonds has fallen rapidly, and gold is also showing signs of a top-up.

Affected by the linkage of US stocks, BTC, which has been accumulating momentum to rise, broke through and plummeted in the last week of February, ushering in the largest drawdown in this cycle and the largest loss week in this cycle.

EMC Labs believes that this market is essentially a price reversal of the "Trump deal". Based on the logic of self-adjustment of US policy and the medium- and long-term optimistic view of the crypto market, we believe that BTC is ushering in a good opportunity for medium- and long-term allocation, and can step up positions and go long on a cautious basis.

**Macro Finance: Expectations of "US economic recession" drive downward

pricing of the market, and may continue to be under pressure in the short and medium term**

The economic and employment data released by the U.S. government in February and the chaotic conflict caused by Trump's tariffs have become two core elements that affect the recent trends of macro-finance and crypto markets.

On February 7, the U.S. Bureau of Labor Statistics took the lead in releasing core employment data. After the seasonal adjustment in January, the non-farm employment population was only 143,000, which was significantly lower than the expected 170,000. The unemployment rate was 4%, slightly lower than expected 4.1%. The sharp decline in the size of non-farm employment has begun to increase market expectations for the US economic recession.

The CPI data released on February 12 showed that the monthly rate of CPI in January was as high as 0.5%, far higher than the expected 0.3%, and higher than the 0.4% in December last year, pushing the annual rate to 3% beyond the expected 2.9%. Since then, U.S. inflation data has rebounded for three consecutive months, making the market firmly believe that the Fed has more reasonable reasons to postpone the interest rate cut. Even if the economy shows a recession expectation, it may be difficult to make the Fed change its decision.

On February 21, the University of Michigan released the U.S. consumer confidence index for February, with a final value of 64.7, lower than the initial value of 67.8, falling to its lowest point in 15 months. The continued sluggish consumer confidence will inevitably be transmitted to the company.

University of Michigan Consumer Confidence Index

Coupled with previous negative information, this data that exceeded expectations ultimately defeated market confidence. All three U.S. stock indexes fell sharply on that day.

It has risen sharply for two consecutive years. The U.S. stocks, which are at historical highs, continued to fall sharply in the next week after the 21st (Friday), erasing all the gains this month and continuing to go downward. The Nasdaq fell 3.97% month-on-month, the Dow Jones fell 1.58% month-on-month, the S&P 500 fell 1.42% month-on-month, and the SME Index RUT2000 fell 5.45%. Both the Nasdaq and the S&P 500 fell below the 120-day moving average.

For traders, inflation rebounds continuously, employment conditions may begin to decline, and the shadow of "recession" hits again, and cutting long positions may be the best choice.

The crisis goes beyond that. In addition to deteriorating economic and employment data, Trump's chaotic and repetitive decisions on tariff policies have also made the market feel chaotic and pessimistic.

In January, Trump signed a memorandum of the "U.S. First Trade Policy", announcing an 25% tariff on Mexican and Canadian goods at the end of the month and a 10% tariff on Chinese goods (implemented). Later, it was announced that the tax increase in Mexico was suspended for one month, and by the end of the month it was directly announced that it would start on March 4, and an additional 10% tariff was imposed on China. During this period, Trump also claimed to implement reciprocal tariff policies on Europe and other countries.

Previously, the market regarded Trump's tariff policy as a means of political negotiation, but it will now be implemented soon and will begin to become an important factor driving inflation. This may also exceed market expectations, making traders increasingly pessimistic.

The only "Russia-Ukraine negotiations" that may play a benign role in inflation and interest rate cuts have made good progress in most of February, but by the last day of February, there was a dramatic conflict between the two presidents at the White House press conference, causing the mineral agreement that will be signed to abort. European politicians declared support for Ukraine, and the subsequent rift between the United States and Europe will continue to worsen. The resurgence of the "Russia-Ukraine War" that has been confirmed is likely to end in the short term. At this point, the expectation of ending the war to increase oil production to reduce inflation is greatly reduced.

Since November last year, the "Trump deal" has been based on expectations of strong economic growth. Nowadays, with the decline in employment data, inflation remains high, and tariffs have increased inflation expectations, which has reversed market expectations and withdrawn from the "Trump deal" to start a "recession" pricing. Based on this logic, the decline of the three major stock indexes may just be the beginning.

US 10-year Treasury yield (daily)

After mid-January, the yield on the US 10-year Treasury bond continued to decline, falling from a highest of 4.809% to 4.210%. The sharp changes in the "pricing anchor" reflect the sharp downward adjustment of the capital market for the economic recession.

With inflation rebound, signs of economic decline and sharp drops in stock markets and 10-year Treasury yields, the market's expectations for the Fed's interest rate cut this year began to rise again, with the number of times rising from one to two times. Technically, both the Nasdaq and S&P 500 have fallen below the 120-day line. Based on the current severe form, the market has increased its expectations of interest rate cuts. If there is no positive response, it may continue to sell in the short term.

Crypto Assets: "Trump's Bottom" is broken down, and medium- and long-term configuration opportunities are welcome

In February, BTC opened at $102,414.05 and closed at $84,293.73, with a high of $102,781.65 and a low of 78,167.81, down 17.69% for the whole month to $18,113.53, with an amplitude of 24.03%. Since the high point fell by 28.52%, the largest retracement since this cycle (January 2023).

BTC price trend (daily line)

Moreover, the monthly decline was concentrated in the last week, and the rapid short-term sell-off caused the market to enter a state of extreme panic. Corresponding to the largest cycle decline, the Panic Greedy Index fell to 10 points on February 27, the lowest point since the cost cycle, close to 6 points when the LUNA collapsed in the last round of bear market.

Technically, the "Trump bottom" (the purple area above) has been effectively broken, which also echoes the US stock market's revenge for "Trump trading". The "first upward trend line" and "second upward trend line" of this cycle that EMC Labs has previously paid attention to have been quickly broken in a short period of time. By the end of the month, BTC price closed near the 200-day moving average.

In addition to linking with US stocks, the cyclical drop in the crypto market this month is also related to negative events within the market.

On February 14, Argentine President Javier Mile posted a notice to promote the MEME currency Libra on the X platform, triggering a speculative boom and driving its market value to soar to US$4.5 billion. Subsequently, the creator withdrew from the trading pool funds, causing the currency price to collapse rapidly and investors suffered heavy losses.

On February 21, suspected North Korean hackers stole more than 400,000 ETH and stETH, with a total value of more than US$1.5 billion, becoming the largest attack in US dollars in cryptocurrency history.

On February 23, the Infini contract was attacked and the stolen funds were stolen.

In addition, the unlocking of SOL tokens caused by FTX bankruptcy liquidation on March 1 will reach 11.2 million, with a total value of only US$2 billion. The unlocking scale reached 2.29% of the total SOL issuance volume, driving SOL prices to fall by more than 50% in the whole month against a weak market background.

EMC Labs judged that the biggest decline in this cycle in the crypto market in February was directly caused by the decline linkage driven by recession expectations by US stocks, which can also be understood as a bidding pricing for "Trump deals". Based on the decline of US stocks, the BTC theory can fall to the maximum of US$73,000, but considering that the Trump administration's coming to power will improve BTC fundamentals much higher than that of US stocks, so the probability of this theory falling low point is lower. The cycle is still continuing. Based on the logic of self-adjustment of US policy and the medium- and long-term optimistic view of the crypto market, we believe that BTC is ushering in a good opportunity for medium- and long-term allocation, and can step up positions and go long on a cautious basis.

**Funds: BTC Spot ETF channel outflows exceeding US$3.2 billion, which is

the direct reason for the decline**

As Trump's trading sentiment cooled, inflows to the crypto market slowed sharply in February. This slowdown inflow interacts with the price decline, which eventually led to a sharp drop in BTC price breaking through the last week of February after a long period of trading at the $96,000 line. In February, the scale of capital inflows dropped sharply to US$2.111 billion.

Statistics of capital flows in crypto markets (daily line)

Entering the classified funds, EMC Labs found that stablecoin funds showed differences with BTC Spot ETF channel funds. The stablecoin channel has inflowed US$5.3 billion throughout the month, while the ETF channel has outflowed as high as US$3.249 billion.

Crypto market capital flow statistics (monthly line)

In previous reports, we pointed out many times that BTC Spot ETF has mastered the medium- and short-term pricing power of BTC, so the BTC price trend is highly correlated with the US stock trend.

This month, the BTC Spot ETF channel flowed out of more than US$3.2 billion, becoming the most direct external reason for the decline, setting a record for the largest single-month selling since its listing. The subsequent BTC trend also mainly depends on the improvement of US economic expectations and the return of funds in the BTC ETF Spot channel.

Secondary selling: bloody chips come from short-handed groups

Since the second sell-off started in early October 2024, 1.12 million BTC chips have changed from long-hand holding to short-hand holding. We regard the secondary selling as a necessary condition for the end of a bull market cycle. The logic behind it is that the activated BTC scale will squeeze out liquidity after it grows to a certain extent, resulting in the complete destruction of the upward trend.

Looking at the February when consolidation and plunge surprises, the long-term group maintained an extremely restrained state, selling only 7,271 pieces. In fact, the existing long-term group has long ignored the quotation of the "Trump bottom" range (89,000 to 110,000 US dollars) and chose to hold the currency and wait for the rise.

In the last week of February, the bloody chips transferred came from the short-handed group. According to on-chain data analysis, the short-handed group was sticking to the point of February 24, and the breakdown occurred on the 25th. On that day, the short-handed group on-chain achieved a loss of US$255 million. This is the second largest loss day since this cycle, second only to August 5, 2024 (on-chain loss of 362 million). Historically, after the short-handed group experienced large losses of similar scale, the market often ushered in a phased bottom.

Statistics on the loss scale of long and short hand group chain

In-depth analysis on the chain shows that since February 24, the BTC distributed between 78,000 and 89,000 US dollars has increased by 564,920.06, while the BTC distributed between "Trump bottom" range (89,000 and 110,000 US dollars) has decreased by 412,875.03.

BTC price distribution statistics

The "Trump Bottom" range was minted from November last year to February this year. The coin holders in this range belong to a typical short-handed group. The selling of bloody chips among the short-handed group tried to build a medium-term bottom, and also consolidated the range of 73,000 to 89,000, which is a smaller chip.

Conclusion

In the January report, we emphasized that "the biggest external uncertainty comes from the chain reaction of Trump's economic policy toward interest rate cut expectations and fund supply after it is implemented. Once capital liquidity is trapped, volatility will rise sharply."

This worry has come true.

According to our previous analysis, the selling of bloody chips comes from the short-handed group, while the long-handed has quietly slowed down and held the coins waiting for the rise. EMC Labs judges that the current bull market is only in a relay state, not a bear market.

We judge that the largest drawdown event of BTC this cycle in February was caused by the huge outflow of BTC Spot ETF funds caused by the downward revision of the "recession expectations" by the US stock market, which was at a historical high. The turning point will also come from the turning point and trend rebound of the US stock market expectations.

The internal structure is relatively stable, and the BTC and crypto markets are still operating within the cycle rate, and short-term price declines usher in a good opportunity for medium and long-term allocation.

What needs to be carefully observed are the trends of the US macroeconomic, market expectations, and the Federal Reserve's attitude towards restarting interest rate cuts.

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EMC Labs (Emergency Labs) was founded in April 2023 by crypto asset investors and data scientists. Focusing on blockchain industry research and Crypto secondary market investment, taking industry forward-looking, insight and data mining as its core competitiveness, we are committed to participating in the booming blockchain industry through research and investment, and promoting blockchain and crypto assets to bring welfare to mankind.