Market Repricing Phase: The Dilemma of Crypto Narratives and the Test of Institutional Beliefs

Author: Proton Capital Research Team

Abstract

The cryptocurrency market is currently in a process of searching for a bottom. On a macro level, the Federal Reserve's "higher for longer" interest rate environment and the uncertainty surrounding personnel changes will continue to suppress BTC prices. The core narrative of Bitcoin will shift from institutional acceptance to a test of institutional faith. Based on interest rate cuts and historical cycles, the bottom range may oscillate until mid-year. ETH and SOL also face their respective dilemmas: ETH will experience growing pains from an ecological model shift, and its Layer-2 narrative may be coming to an end; meanwhile, Solana will enter a phase of value return after the meme tide recedes.

At the same time, the roles of various institutions in the bear market are clearly differentiated. MicroStrategy, as a steadfast bull in this round of the bull market, will face significant pressure testing in the bear market; miners are currently struggling near shutdown prices, and the decline in hash rate is accelerating the search for a bottom; on the regulatory front, the CLARITY Act has encountered obstacles in the Senate, becoming a key variable before the midterm elections; while Wall Street institutions like BlackRock have a clear long-term layout, short-term ETF fund flows show a lack of strong bottom-fishing willingness, and the market will continue to be in a bottom-confirmation phase.

I. Overview of Macro and Cryptocurrency Markets

1. Deep Bear Market and Macro Suppression

In February 2026, the cryptocurrency market as a whole entered a deep bear market. Bitcoin has seen a cumulative decline of over 50% since reaching an all-time high of $126,000 in October 2025, with a total market capitalization evaporating by nearly $2 trillion. On February 6, Bitcoin fell more than 14% in just one day, touching the critical support level of $60,000, triggering a chain of liquidations in the derivatives market. This round of decline is not driven by a single event but is a result of the resonance of macro expectation restructuring, leverage clearing, and institutional faith shaking.

Figure 1. Fed Watch (Source: CME Group)
On a macro level, the complete reversal of expectations for Fed rate cuts is the core driving force behind this bear market. The U.S. employment data released in early 2026 has consistently exceeded expectations, pushing the U.S. Treasury yield curve to exhibit "bear flattening" characteristics, with market expectations for a rate cut in March dropping to single digits. The CME FedWatch tool shows that traders generally expect the first rate cut to be pushed back to the second half of the year or even later. This "higher for longer" interest rate environment directly suppresses the valuation center of all risk assets, with the cryptocurrency market being the most sensitive area to liquidity.

At the same time, the overall financial market is also filled with concerns about personnel changes at the Federal Reserve. Kevin Warsh has been nominated as the new Fed Chairman; he served as a Fed governor from 2006 to 2011 and was known for his "hawkish" stance. During the nomination hearing, Warsh proposed a combination of loose monetary policy and quantitative tightening, which has also led to an increase in long-term Treasury yields, indicating a potential loss of liquidity for BTC.

The interest rate cut cycle and historical cycles will continue to be important factors for us to observe the timing of BTC's current bear market. Historically, cryptocurrency bear markets typically last 12-18 months, and this round of decline began in November 2025. Based on this pattern, the bottom may appear in the third quarter of 2026. From the perspective of the Fed's interest rate cut process, the likelihood of restarting rate cuts is high around mid-year, and each 25 basis point cut typically takes 2-3 months to transmit to risk assets. The actual stabilization and recovery window for the market may occur from late third quarter to early fourth quarter of 2026.

2. Bitcoin: The First True Test of Institutional Faith

Bitcoin broke below $65,000 in mid-February, retreating 48% from its all-time high, and is currently weakly oscillating around $68,000. The technical trigger for this round of decline was the loss of the critical psychological level of $67,000, which triggered automated sell orders from quantitative strategies and a chain of forced liquidations of leveraged positions. At the same time, in the bear market, the behavior of institutional roles has shown differentiation. On one hand, "Bitcoin whale" addresses have increased their holdings against the trend after the plunge. On the other hand, ETF fund flows starkly contrast with whale behavior, with U.S. spot Bitcoin ETFs experiencing net outflows for three consecutive months, with over $1 billion flowing out by February 20. Mining companies have also begun to "de-leverage": Cango sold 4,451 Bitcoins to repay loans, and Marathon transferred 1,318 BTC to institutional platforms for treasury management.

Looking ahead to 2026, Bitcoin's core narrative will shift from institutional acceptance to a test of institutional faith. The core supporting logic of this bull market—continuous buying by publicly traded companies like MicroStrategy and the influx of funds from ETFs—has already reversed. MicroStrategy's holding cost is approximately $76,052, and the current price has fallen below this cost line, indicating that the most steadfast institutional bulls are beginning to face paper losses. Technically, the $58,000 to $60,000 range will be an important short-term support level, with $58,000 corresponding to the 200-week moving average. If this area is effectively broken, the next support level will shift down to the $45,000 to $50,000 range. Overall, Bitcoin is likely to oscillate in a bottoming range of $55,000 to $75,000 in the first half of the year, and the market reversal will require waiting for more signals.

3. Ethereum: The Dilemma of Layer 2 Narrative

Ethereum's current price is approximately $1,950, down 52% from the $4,100 high in December 2025, underperforming Bitcoin. Citigroup's latest report released in February downgraded Ethereum's target price for the end of 2026 from $6,400 to $4,300, warning that it could drop to $2,200 in a bear market scenario. The report pointed out that network activity remains an important driver of expected Ethereum prices, but most recent growth has occurred in Layer 2 networks, and the impact of this growth on the Ethereum main chain remains unclear.

On February 3, Vitalik Buterin posted on X stating, "The initial vision of Layer-2 and its role in Ethereum is no longer applicable; we need a new path." He also mentioned two major dilemmas facing the Layer-2 model: 1. The pace of advancement to the second phase of Layer 2 is much slower and more difficult than expected; the current Layer 2 networks resemble centralized databases; 2. The Ethereum L1 layer itself is expanding, with very low transaction fees, and the gas limit is expected to increase significantly in 2026.

Figure 2. Comparison of Active Addresses on Ethereum and Layer 2 (Source: Token Terminal)
On-chain data shows that the number of active addresses on the mainnet exceeded all other Layer 2 networks in January. The resurgence of Ethereum's activity closely followed the Fusaka upgrade in December last year, which significantly reduced transaction fees, lowering the cost of trading directly on Ethereum again. Citigroup analysts pointed out that only about 30% of Layer 2 activity translates into value contribution to the Ethereum main chain. A large number of transactions are settled on Layer 2, with the main chain serving only as a finality anchor, which means Ethereum's "fee-burning" mechanism is ineffective; despite the overall increase in network transaction volume, the actual deflationary pressure on ETH has significantly eased.

In 2026, Ethereum will face growing pains from an ecological model shift, and its Layer-2 narrative may be coming to an end. Technically, the $1,800 to $2,000 range is a long-term accumulation zone since 2024; if it breaks below, it may test $1,500. In the first half of the year, Ethereum's performance may continue to lag behind Bitcoin, and a relative value return will require new signals, such as a change in ETF fund inflow patterns or substantial positive developments after further technical upgrades.

4. Solana: Value Return After the Meme Wave

Solana is the most severely impacted leading public chain in this bear market, and its narrative model is also being tested by the market. SOL fell from a high of $295 in October 2025 to $67, declining for five consecutive months, with a maximum drop of over 71%, and is currently hovering around $80.

The retreat of the meme craze is a core dragging factor. Solana sparked a "Meme Summer" through the Pump.fun platform, with daily new token issuances once exceeding 10,000. From on-chain data, since mid-2025, the meme craze has cooled, with monthly trading volume on pump.fun dropping from over $11 billion at its peak to around $2 billion in January 2026. In addition to the overall recovery of the meme craze, some recent meme traffic has shifted to the BNB Chain's Four.Meme platform, and when BNB Chain's meme surged, Solana's funding clearly contracted.

Figure 3. Pumpswap On-chain Trading Volume (Source: DeFiLama)
Aside from the meme narrative, Solana's narrative as a "high-speed public chain" once attracted developers, but as Ethereum approaches Solana's speed and cost through the Fusaka upgrade while maintaining higher security and decentralization, Solana's appeal diminishes. On the other hand, the RWA track is further marginalizing Solana. Under the tokenization craze, RWA is more prevalent on Ethereum—RWA assets on the Ethereum mainnet reached $14.9 billion, while Solana only had $1.7 billion. The RWA trend emphasizes stability and compliance, making it difficult for Solana to gain a share.

In the first half of 2026, Solana will enter a "value return phase after the meme retreat." Prices may oscillate widely in the $50 to $100 range, with the key being to observe whether meme coin trading volume can recover, whether new growth points emerge in the public chain ecosystem, and whether founder Toly's entry into the CFTC Innovation Advisory Committee can bring about positive changes at the policy level.

II. Role Differentiation in the Bear Market and Future Landscape

1. MicroStrategy (DAT): "Stress Test" of the Leveraged Bull Market

In the bear market, attention should first be paid to DAT company, which is also one of the potential points of concern for market participants in this bear market cycle. As the world's largest Bitcoin corporate holder, we will focus on MicroStrategy. In its Q4 2025 financial report, the company reported a net loss of $12.4 billion for the quarter, primarily due to an unrealized fair value loss of $17.4 billion on its holding of 713,500 Bitcoins, revealing the vulnerability of such companies in a bear market.

Figure 4. MicroStrategy Unrealized Gains and Losses (Source: Glassnode)
Current interpretation of its core financial data:

• Holding Size: 713,502 BTC, accounting for approximately 3.4% of the circulating Bitcoin supply

• Average Cost: $76,052 per coin

• Cash Reserves: $2.25 billion, sufficient to cover interest and dividend expenses for more than two years

• Leverage Risk: The company has been continuously increasing its holdings through convertible bonds and equity financing, and currently has no margin call risk

Firstly, from the average cost of its BTC holdings, the current price has significantly fallen below it, but the market doubts that MicroStrategy's collapse will occur in the short term for two main reasons:

1. Its loan repayment deadlines are still long: MicroStrategy primarily funds its BTC purchases through convertible bonds and unsecured debt, with this portion of borrowing maturing as early as 2027, with overall maturity dates spread between 2027 and 2032. Therefore, the current short-term price drop will not lead to forced liquidation of its BTC holdings.
2. Its borrowing ratio is within a controllable range: Its overall borrowing scale is within a normal range compared to its market capitalization, and MicroStrategy still maintains cash flow income from its traditional business, which can also be used to repay interest expenses.

Therefore, overall, the likelihood of MicroStrategy selling BTC for financial reasons in the short term is low, but the possibility of its founder Michael Saylor selling some BTC under shareholder pressure still exists, especially if BTC prices remain low for an extended period. In a recent earnings call, Michael Saylor also stated for the first time that "selling Bitcoin is an option," contrasting with his previous firm stance of "buy and hold forever." If MicroStrategy begins to sell BTC, it will not only exert significant selling pressure on the market but also deliver a devastating blow to market confidence.

Future Outlook: MicroStrategy will enter a period of faith testing in the bear market, with falling prices leading to a decrease in net assets and rising costs of equity financing. The company is likely to continue its HODL strategy, but the erosion of market confidence will be reflected in MSTR's stock performance, which has already fallen over 70% from its peak. In this bear market, MicroStrategy will serve as a "systemic risk observation indicator" for the cryptocurrency market: as long as it is not forced to sell, there is a bottom line for the market; once signs of reduction appear, it may trigger a chain reaction of institutional holdings.

2. BTC Miners: Struggling Near Shutdown Prices

The recent decline in BTC that began at the end of 2025 again confirms the existence of the BTC halving cycle, thus bringing the performance of overall miner costs back into focus.

The average mining cost for miners is typically viewed as one of the ultimate support lines for BTC prices. When the price falls below the cost, miners usually stop selling or even increase their holdings due to losses, leading to reduced market liquidity and thus supporting price recovery. At the same time, when the price falls below the shutdown price of mainstream mining machines, some miners will be forced to shut down, resulting in a decrease in overall network hash rate, which in turn triggers a difficulty adjustment that lowers mining costs. This phenomenon of "miner capitulation" is often considered a signal for the formation of BTC bottoms.

In JPM's latest "Digital Asset Liquidity Brief," it pointed out that BTC's drop below $65,000 triggered a wave of shutdowns among high-cost miners. The report warns: "The current hash rate correction is not yet over, and we expect to see large-scale selling of miner inventories in the $58,000-$62,000 range." Below is a market statistic showing the distribution of shutdown prices for mainstream mining machines, predicting based on mainstream electricity costs of $0.06/kWh to $0.08/kWh: the current price is near the shutdown price of mainstream mining, and during the process of difficulty adjustment not yet completed, miner selling may still continue; when the price falls below $58,000, most machines will be below the shutdown price, and the relative bottom space for BTC may be confirmed.

Figure 5. Mining Machine Survival Heatmap (Source: Flame Labs)

Future Outlook: Although miners are generally in a state of loss, the recent overall decline in network hash rate has improved mining difficulty returns. However, many unlisted small miners face elimination, and hash rate is increasingly concentrated among listed giants with mature infrastructure and long-term low-cost electricity contracts. Additionally, BTC prices have begun to gradually breach the shutdown prices of mainstream mining machines, indicating that BTC is in the process of searching for a bottom.

3. U.S. Regulatory Progress: CLARITY Stalled

The U.S. regulatory process is another area that must be closely monitored. The overall progress of U.S. government regulation played a crucial role in the last bull market, and thus the current bear market also requires close attention to the regulatory process. The passage of the GENIUS Act in 2025 brought a wave of stablecoins, while the CLARITY Act may be an important attempt by the U.S. government for comprehensive regulation of the cryptocurrency market. Its core goal is to clarify the regulatory boundaries of the cryptocurrency market, particularly regarding the delineation of regulatory powers between the SEC and CFTC. Under the bill, the SEC is responsible for the issuance and sale of digital assets as securities, while the CFTC oversees the digital currency market.

Currently, the bill has been passed by the House of Representatives and is in the Senate stage. It has already been reviewed by the Senate Committee in January 2026, where the U.S. Senate Agriculture Committee narrowly passed the CLARITY Act by a vote of 12 to 11. The bill must still pass a full Senate vote, coordinate between the two chambers, and receive the President's signature, with collective opposition from Democratic senators during this committee vote. Therefore, the market is filled with doubts about its passage in the Senate.

In addition to the bipartisan confrontation in the U.S., there are also internal disagreements within the cryptocurrency industry. Coinbase founder Brian Armstrong believes that implementing the current version would cause far more harm than good to the cryptocurrency industry. The core reason is that the bill prohibits providing rewards to users holding stablecoins, a provision pushed by the American Bankers Association, which significantly impacts Coinbase's current business.

Figure 6. Probability of the CLARITY Act Being Signed in 2026 (Source: Polymarket)

Future Outlook: Currently, the CLARITY Act is facing obstacles in the Senate, with the Senate Banking Committee postponing the originally scheduled review of the bill in January, which may be delayed until the second quarter. If progress is hindered and the window before the midterm elections is missed, the bill is unlikely to pass in 2026. However, U.S. Treasury Secretary Scott Bessent expressed in an interview a willingness to see the long-stalled CLARITY Act advance, indicating the Trump administration's attitude towards it. According to Polymarket data, the probability of the bill passing this year has also risen above 60%.

4. BlackRock: Diverse Layout in Cryptocurrency

Finally, attention should be paid to Wall Street financial institutions, especially BlackRock, which has become an important driving force in the cryptocurrency market. Its launched spot ETF—IBIT—has significantly enhanced market liquidity in this round of the bull market.

Figure 7. BTC Spot ETF Fund Flows (Source: Farside)

From the perspective of ETF fund flows, since Bitcoin fell below the $70,000 mark, the IBIT fund attracted a large influx of funds on the day Bitcoin dropped. However, during the slight rebound of Bitcoin, IBIT's funds have continued to show net outflows, indicating that market bottom-fishing sentiment is relatively low in the $65,000 to $70,000 range. In addition to IBIT, BlackRock has also submitted a registration application to the U.S. Securities and Exchange Commission for the iShares Bitcoin Premium Income ETF, planning to track spot prices by holding Bitcoin while using a "covered call option" strategy to create additional income for investors.

Moreover, BlackRock announced that on February 11, 2026, it will launch its tokenized treasury bond fund BUIDL and deploy it for on-chain trading on the Uniswap protocol. BlackRock has also confirmed the purchase of Uniswap's native governance token UNI, although the quantity has not been disclosed, indicating its first move to hold DeFi tokens on its balance sheet.

Future Outlook: Based on the fund flow analysis of BlackRock's spot ETF, Wall Street funds still lack a strong bottom-fishing willingness in the short term, so the cryptocurrency market may continue to be in a bottom-confirmation phase of the bear market. However, BlackRock is clearly prepared for a long-term layout in the cryptocurrency market, with on-chain trading and ETFs being key strategic focuses.

Conclusion

In February 2026, the cryptocurrency market is in a transitional period of temporary liquidity withdrawal. Within the cryptocurrency market, mainstream projects will generally face growing pains in their business model transformations; macro liquidity tightening forces the market to de-leverage, and institutional faith will undergo its first true stress test, while the current institutional layout and regulatory restructuring will lay the foundation for the next cycle.

Overall Judgment: Overall, we are in the mid to late stage of this bear market, with the market undergoing wide-ranging oscillations in the process of bottoming out, and a reversal will require waiting for new signals.

1. Time Dimension: The bear market is expected to last until mid-year, making a trend reversal unlikely before rate cuts begin.
2. Space Dimension: Bitcoin's important support levels are $55,000 to $60,000, Ethereum's at $1,500 to $1,800, and Solana's at $60 to $70, which are also potential bottom ranges for this bear market.
3. Structural Opportunities: Focus on the U.S. regulatory process, particularly beneficiaries of clarity, such as compliant stablecoins and licensed institutions; diversified business-related targets, such as Uniswap in collaboration with BlackRock; and new use cases emerging in non-regulatory areas, such as AI agents and prediction markets.

Compared to the last bear market, the uniqueness of this bear market lies in its higher degree of institutionalization and clearer regulatory framework, which may not lead to risks similar to the FTX collapse. The overall clearing process may be relatively long, but the bottom will be more solid.