Growing Concerns of a Hard Landing: Liquidity Reversal and Revaluation in the Cryptocurrency Market in February

As of mid-February, the crypto market has shifted from the recovery phase seen in December into a new correction cycle. Bitcoin has fallen approximately to $67,830 over the past two months, down 23% from around $88,000 in December. This movement is not merely a technical rebound failure but reflects growing concerns about a hard landing scenario and a transition from short-term liquidity support to medium-term constraints. After the sharp decline in November and limited recovery in December, the cryptocurrency market now faces more structural challenges.

Correction Wave Since December: Failed Recovery and Increasing Downward Pressure

The December rebound suggested a shift from “passive risk aversion” to a “recovery phase under cost and liquidity constraints.” Bitcoin ETF saw continuous small net inflows, with monthly net inflows exceeding $200 million by December 12, indicating ongoing reallocation by institutional investors. However, the price of Bitcoin at $67,830 in February signifies that the previously optimistic bullish scenario has completely failed.

Support zones considered in December—namely the $80,000–$85,000 institutional ETF cost basis range and the on-chain concentration zone—have lost their support function. More critically, this failure indicates a qualitative shift in market psychology—an accelerated tilt toward concerns of a hard landing, rather than just a price decline.

Ethereum, as of February 16, reached $1,970, down 40.5% from $2,950 in December. The altcoin market is even more severe, with Solana at $84.50 (a 41.38% decline over 30 days) and XRP at $1.47 (a 29.07% decline), suggesting further withdrawal of institutional funds.

Liquidity Environment Reversal: From Short-term Support to Medium-term Constraints

In December, the Federal Reserve ended quantitative easing (QE) and resumed short-term US Treasury purchases, leading to a localized improvement in short-term liquidity. The Reserve Management Program (RMP) was planned to run at about $40 billion per month, primarily as a technical measure to control short-term interest rates, not as stimulus.

By February, the effects of this short-term liquidity improvement are limited. While the US Treasury General Account (TGA) balance and SOFR-IORB spreads have improved, long-term yields remain constrained by term premiums and fiscal supply pressures. With a massive fiscal deficit—$1.8 trillion in FY2025 (about 5.9% of GDP)—the Fed has limited room to push long-term yields lower.

This “short-term bottom-up, long-term headwind” structural constraint continues to hinder the upward trend in the crypto market. Bitcoin’s market share in February remains at 55.44%, similar to previous levels, but its resistance to downside has weakened significantly.

Four Economic Scenarios and a Hard Landing: The Macro Divergence Point in 2026

The fate of the crypto market in early 2026 heavily depends on which scenario the US economy follows. The increasing likelihood of a hard landing dominates current market sentiment.

Scenario 1: Realization of a Hard Landing
If employment and demand weaken sharply while inflation declines simultaneously, the economy will enter a clear downturn. Signs of rising unemployment pressure and stagnant labor participation are already evident in February data. If this scenario unfolds, risk assets will face a typical risk-off shock in the short term, and the crypto market will struggle against capital outflows. However, historical experience shows that after recession confirmation and a shift to dovish policies, liquidity environment recovery often provides a second opportunity for risk asset revaluation.

Scenario 2: Soft Landing with Sticky Inflation
If economic growth remains solid but inflation declines slowly, the Fed’s room to cut rates will be limited. Recent inflation data (November CPI YoY 2.7%, core CPI about 2.6%) confirm persistent inflation. Under this backdrop, real interest rates and financial conditions will not ease significantly, constraining valuation expansion of risk assets. The crypto market may oscillate around its core value, with more structural and relative opportunities rather than trending growth.

Scenario 3: Reaccelerating Inflation
Signs of inflation reaccelerating, rising inflation expectations, or clearly easing financial conditions could prompt the Fed to end rate cuts early and reassess tightening. In this “prolonged high-rate” scenario, high-beta assets like cryptocurrencies would face sustained valuation pressure.

Scenario 4: Optimal Soft Landing
Only if economic growth remains moderate, employment stays stable, and inflation shows a downward trend will the Fed have room to ease policy. This scenario is most favorable for risk assets, allowing valuation recovery and trend upward movement in cryptocurrencies.

Current market psychology leaning toward a hard landing is driven by signs of labor market weakening (rising unemployment, sluggish job gains) and persistent inflation stickiness.

Bitcoin and Ethereum: Fragile Support and Gradual Risk Management

On-chain data further highlight current vulnerabilities. Bitcoin’s chip structure remains concentrated around the $80,000–$85,000 range, but the drop to $67,830 in February indicates this support zone has failed.

Institutional ETF net outflows have resumed, reversing the small net inflows seen in November (-$3.5 billion) and December, signaling a new withdrawal phase. Ethereum has similarly lost support zones around $2,800–$3,100, plunging rapidly to $1,970.

The Fear & Greed Index shows excessive fear, suggesting downward acceleration may continue. The sharp decline from January to February confirms that December’s “recovery” was merely a technical rebound, not a fundamental improvement.

In the short term, the main operational range for Bitcoin likely needs downward adjustment from around $67,000 to $60,000. Without significant liquidity expansion or interest rate drops, reversing this downtrend will be difficult.

Rebuilding Allocation Strategies: Focus on Core Assets Amid Uncertainty

In this environment, asset allocation should be reconstructed based on these principles:

First, maintain a neutral and defensive risk exposure management approach. During heightened hard landing fears, tail risk management should take precedence over trend participation.

Bitcoin remains the optimal core asset adjusted for risk. However, with the breakdown of the traditional support at $80,000–$85,000, it is necessary to reassess support levels. The market is now in a phase waiting for the formation of new support zones around $67,000 to $60,000.

Ethereum and altcoin markets should remain in gradual, limited positions until clearer liquidity expansion or policy signals emerge. Given ongoing persistent selling pressure on high-beta assets, aggressive additional purchases are not recommended.

Holding stablecoins to ensure liquidity is a key strategic element in this high-uncertainty environment.

Outlook for Early 2026: The Process of Digesting Uncertainty

Overall, the crypto market is currently operating under a dominant concern of a hard landing. Before macro uncertainties resolve, the environment will likely be characterized by range-bound, non-expansive liquidity, with shocks and structural opportunities being the main features.

Switching between different scenarios depends heavily on labor market signals, inflation trends, and overall financial conditions. The sharp decline in February clearly shows that December’s recovery was illusory, prompting market participants to rapidly adopt more realistic and defensive positions.

If the likelihood of a hard landing remains limited, a gradual re-valuation process focused on value will continue. However, if signs of a hard landing intensify, cryptocurrencies could test levels below $60,000.

The true trend direction will depend on clearer policy and liquidity signals. Currently, patience in waiting for easing of hard landing fears, maintaining core holdings, and reducing risk exposure until new support zones form remains the most practical and appropriate strategy.