At the beginning of 2026 in the UTC+8 time zone, the continuous reduction in USDT and stagnation in USDC, along with the evident weakening of demand for Bitcoin spot ETFs, formed a set of key liquidity engines that originally supported the last bull market, all hitting the brakes almost simultaneously. Meanwhile, signs of tightening in institutional funding also emerged: the representative action of FG Nexus centrally selling 7,550 ETH, cashing out approximately 14.06 million USD, materialized the sense of draining liquidity through selling pressure. On the surface, prices have not yet shown a systemic collapse, but the underlying funds are retreating and contracting in sync, and the market's expectations for price recovery are colliding head-on with the reality of liquidity retreating. The current cryptocurrency market needs to answer a cruel question: is this a short-term liquidity pain, or the starting point of a new winter cycle.
From Frenzy to Brake: The Stablecoin Faucet is Shrinking
● Slowing expansion rather than absolute collapse: After a few years of aggressive expansion, USDT has begun to show signs of continuous reduction, while USDC's scale has stagnated, more or less remaining "roughly flat." Neither has experienced a cliff-like shrinkage, but the increment has clearly disappeared; the scene of “water levels surging” which was seen before every market rally is now replaced by a slow, continuous tightening, indicating that the frenzy phase at the supply end is over.
● Chain reaction of liquidity levels and trading ecology: The overall scale of USDT and USDC essentially constitutes the upper limit of the dollar-denominated funding pool within the market, determining the depth of order books, scale of market-making, and leverage available. When the faucet switches from "fully open" to "half open," orders can be consumed more quickly, large trades are more prone to impact prices, and the cost of leveraging funds rises accordingly, making the entire market's quotation—transaction—clearing chain fragile and tense.
● Caution at the issuance end under regulation and interest rate expectations: Against the backdrop of increasingly stringent global regulation and a high interest rate environment, issuers are more sensitive to compliance pressure, funding costs, and asset reserve management. Although there is a lack of comprehensive public data to disassemble the specific causality behind each reduction, it is confirmed that macroeconomic uncertainties are pressing down the risk appetite at the issuance end, making them more willing to maintain or even slightly contract, rather than actively leverage for expansion as in the past.
● Understanding reductions through trends rather than calculations: Currently, public channels do not provide sufficiently reliable data on the exact market value and changes in proportion for USDT and USDC; any specific percentage or amount changes are subject to dispute. Therefore, the descriptions of "reduction" and "stagnation" in this section are more based on directional trends and market consensus rather than precise calculations. For investors, it is important to recognize that "the water level is going down," rather than getting caught up in unverified specific numbers.
FG Nexus Cut Losses: A Sample of Institutional Passive Reduction
● The scale and rhythm of concentrated selling: In a tightening liquidity environment, FG Nexus opted for a one-time sale of 7,550 ETH, recouping approximately 14.06 million USD. The scale of such a single operation is highly noticeable both on-chain and in the order book, and it releases signals that institutions are eager to reduce risk exposure. Unlike routine structural adjustments, this resembles a "quick knife" style of reduction, prioritizing the conversion to available cash.
● The magnitude of long-term loss pressure: Public data statistics show that FG Nexus has a historical on-paper loss of about 80 to 82.8 million USD on ETH, meaning its duration and extent of enduring unrealized losses far exceed the psychological limits of ordinary investors. Being trapped over the long term and dragged down by net worth, once combined with redemption requests or internal risk assessment, will turn "cutting losses" from an emotional decision into an institutional act.
● The logic of choosing to sell before price recovery: Theoretically, if there is still confidence in the medium to long-term market, institutions are more likely to choose to endure the liquidity tightening period, waiting for price recovery before slowly exiting. However, FG Nexus's concentrated selling in the current environment may correspond to three pressures: first, requests for redemption and return from investors; second, internal risk management's hard constraints on leverage and exposure; third, a lack of sufficient confidence in the future market, unwilling to take on liability for potential new downward movements.
● Amplifying the effect from individual cases to samples: Rather than viewing FG Nexus as an isolated story, it is better understood as a "sample of institutional reduction at the liquidity inflection point." When USDT and USDC expansions hit the brakes and ETF buying power weakens, institutions holding substantial on-chain positions naturally become forced buffers for adjustments. The actions of FG Nexus provide us with a window to observe the collective actions that a broader set of institutional funds might take under similar pressures.
ETF Buying Power Fades: Bitcoin Loses Mechanical Investment
● Market consensus on weakening demand: After an explosive start during the launching phase, the rhythm of Bitcoin spot ETF subscriptions and redemptions has clearly slowed down, with the market generally perceiving the lack of new purchasing momentum and funds opting to wait and see. Although we deliberately avoid any unverified specific figures of net inflows or outflows, "buying power fading" has become a common consensus among brokers, funds, and traders, with the previous relentless passive buying power losing momentum.
● From mindless investment machine to silent accounts: In the last market cycle, spot ETFs acted as mechanical long-term buyers—every allocation instruction, every asset allocation adjustment, would automatically form inflexible, price-insensitive buy orders in the spot market. The power of this "mindless investment" had once become an important support for rising prices. Now that the momentum has weakened, it means this machine no longer provides a continuous push for prices but only acts passively during extreme pullbacks.
● The competition of interest rates and risk-free returns: The cooling demand for ETFs is largely related to fluctuations in US dollar interest rate expectations. When the risk-free returns of traditional assets like government bonds and money market funds remain attractive, marginal funds tend to prefer assets with more controllable volatility during pullbacks. For institutional and high-net-worth investors, keeping money in cash equivalents in a high interest rate environment is, in itself, a "high cost-performance" conservative strategy, clearly prioritizing over withstanding significant volatility in Bitcoin.
● Price dilemma under dual bleeding: While USDT and USDC expansions slow down, the loss of continuous incremental buying from ETFs creates an awkward structure in the cryptocurrency market where spot and derivatives liquidity begins to exhibit "stuck up, stuck down" dynamics. To the upside, there is a lack of abundant buying to support the lift; to the downside, insufficient depth and leverage contraction easily amplify losses. Price volatility becomes both sharp and directionless, causing both bulls and bears to exhaust their ammunition in narrow frequency fluctuations.
Fluctuating Interest Rate Expectations: The Fed Hits the Wait Button
● Fluctuating expectations from a single source: A widely mentioned current data point is that: the possibility of the Fed lowering interest rates by only 25 basis points in June is approximately 50-50. It is important to emphasize that this judgment mainly comes from pricing of derivatives and institutional assessments from a single source, not from official pathways, thus its uncertainty is very high, but it serves as a reference coordinate for measuring market sentiment.
● High interest rates raise the threshold for cryptocurrencies: When the high interest rate state is prolonged and the pace of rate cuts is continuously delayed, the lower limit of yields for dollar-denominated assets is overall elevated. For cryptocurrency fund managers needing to explain "why not buy safer bonds or money market funds," crypto assets have to offer significantly higher expected returns to compete for fund allocation, which directly compresses the market's willingness to leverage and open new positions.
● Dual waiting under an uncertain path: The uncertainty of interest rate paths makes long-term capital prefer to wait for clearer macro signals before acting, while short-term funds are also unwilling to "force it" in an environment where liquidity is thinning and volatility may spike at any moment. Consequently, funds simultaneously enter a defensive state on the dimensions of time and risk, preferring to maintain cash or low-risk asset positions rather than making emotional bottom-fishing moves in the crypto market.
● Cautious resonance from macro to micro: When the pace of rate cuts is priced, projected, and revised repeatedly, the hesitation at the macro level directly transmits to conservative strategies at the issuance end of USDT and USDC as well as reflects the pulling emotions at the ETF subscription end. Issuers, fund managers, and end investors all arrive at similar conclusions under the same logic—"we can wait a bit more." This cross-level synchronized caution creates an overall picture where "funds would rather wait outside than rush into crypto."
Exchanges Play Their Cards: Can Airdrops and New Listings Rescue the Scene?
● Sample of refined airdrop incentives: In the context of a significant decrease in incremental funds, Binance Alpha's second round of LYN airdrops adopts a dynamic points threshold mechanism, adjusting standards based on user behavior and overall participation to enhance user retention and trading stickiness. Compared to traditional "one-size-fits-all" airdrop rules, this design resembles fine-tuned operations aimed at existing users, hoping to fully activate existing funds without new inflows through more complex incentive functions.
● New coin narratives stimulate local activity: On the other hand, Huobi HTX announced it will gradually open WARD trading on February 25, attempting to amplify attention and trading enthusiasm through the narrative of new coins and phased openings. Such new listing actions essentially concentrate the market's imaginative focus on a few small targets, hoping to create several high-speed boats in the midst of a slowing giant ship, maintaining the platform's activity and topicality.
● "Stirring water" function in stock game: Whether through dynamic airdrops or new coin listings, what is more borne in the current environment is the redistribution function of existing funds. Funds flow back and forth between different platforms and old/new assets, with sharp K-line movements and emotional surges; however, when viewed from the overall market perspective, the actual new investments are limited, more so agitating the originally calm water, causing brief splashes and whirlpools in certain areas.
● A tool for buffering rather than reversing cycles: Thus, when overall liquidity visibly contracts at the macro level, operational and product innovations at the platform end serve more to provide psychological and structural buffering for the market—giving participants more stories and gaming space, slowing the pace of funds leaving, rather than fundamentally changing the overall direction of fund inflows and outflows. The shift in cycles still depends on more macro interest rates, regulations, and demand variables, rather than the strategy of a single platform.
Self-Rescue Amidst Contraction: Is the Next Step More Extreme or More Rational?
The current pattern has become quite clear: USDT and USDC expansions hit the brakes, Bitcoin spot ETFs have lost their previous continuous charging rhythm, and institutions like FG Nexus are forced to reduce positions to cash flow. The three forces that could originally hedge each other have instead formed a synchronized contraction of funds over time. In such an environment, prices do not necessarily collapse, but each fluctuation may be amplified on thinner liquidity, leading to frequent occurrences of "nervous market movements" in the short term. Quality assets will survive based on fundamentals and consensus, while marginal assets may be more quickly eliminated when funds withdraw.
For investors, the key moving forward lies in focusing on three main lines: first, whether the supply of USDT and USDC will see a meaningful rebound, marking whether the internal water level is raised again; second, whether the net inflow rhythm of Bitcoin spot ETF subscriptions will stabilize, providing new mechanical buying support for the spot market; third, whether the Fed's interest rate expectations will show a directional shift, allowing crypto assets to regain an advantage in relative returns. Only when at least two of these three factors begin to change simultaneously can the market possibly step out of the "shadow of reductions."
Looking further ahead, this liquidity retreat might become a necessary cleansing: those projects that rely solely on stories, narratives, and short-term funds will expose structural defects as water levels decline; conversely, projects with real long-term value, clear profit models, and robust community foundations may find clearer pricing grounds once the noise diminishes. The crypto market may not be able to choose the macro environment, but it can undergo a self-screening and reconstruction during contractions.
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