1. Essence of the current market situation: the temporary invalidation of value and the manifestation of a liquidity crisis
The recent crash in February 2026 clearly reveals a financial principle that transcends the cryptocurrency market itself: when the market falls into deep panic, the short-term price movements will completely decouple from intrinsic value, instead dominated by extreme imbalances in liquidity supply and demand.
"Insufficient confidence leading to insufficient liquidity": this is the most accurate diagnosis of the current market. The 'value' of an asset is determined by long-term cash flows, utility, and scarcity, while the 'price' of an asset is dictated by immediate buy and sell orders. When the market loses confidence due to macro uncertainties, leveraged liquidations, or narrative collapses, sellers rush to exit, while buyers choose to wait or withdraw liquidity. The severe mismatch of buy and sell orders causes even large-cap assets like Ethereum to experience free falls in price without direct negative news. This is not a failure of the project, but a temporary malfunction of the 'trading market'.
Isomorphism with traditional financial crises: This phenomenon is common in traditional financial markets. For example, during the 2008 financial crisis, many fundamentally sound companies' stock prices also plummeted; in March 2020, the US Treasury market experienced a liquidity crisis. The core mechanism is the same: risk aversion leads to collective selling → market depth becomes shallow → small sell orders trigger huge price slippage → panic intensifies, forming a death spiral. In the crypto market, due to its 24/7 trading, high leverage, and young market structure, this process is severely compressed and amplified.
II. Structural judgment: The shift from 'trend decline' to 'liquidity crunch.'
Understanding the structure of the current decline is the prerequisite for formulating response strategies.
Phase one: Trend decline: Usually triggered by a clear macro shift (such as the Federal Reserve raising interest rates), significant negative news in the industry, or a technical breakdown at the cycle top. At this time, the price decline is accompanied by a reassessment of the fundamentals.
Phase two: Liquidity crunch (current phase): When the price breaks key psychological and technical levels, it triggers large-scale liquidation of leveraged positions. The forced selling pressure generated by the liquidation itself becomes a new, self-reinforcing downward momentum. The market switches from 'selling due to bad news' to an irrational state of 'selling because the price is falling.' At this point, charts and technical analysis may temporarily fail, as it is algorithmic liquidation and panic selling that drive prices, rather than rational decisions.
Key signal recognition: Signs of entering the liquidity crunch phase include: 1) Mainstream assets experiencing nearly vertical declines, with weak rebounds; 2) Extreme negative values in futures funding rates, but weak rebounds; 3) The premium of stablecoins (like USDT to USD) surging, indicating the market's demand for USD liquidity far exceeds that of crypto assets.
III. Behavioral finance perspective: The rational core and huge risks of 'contrarian operations.'
The 'contrarian operation' proposed by the author is classic wisdom in the investment field, but its success is based on deep understanding and strict risk management, not simply 'being greedy when others are fearful.'
Rational core: The market often misprices the downside risks of long-term value assets during extreme fear, providing opportunities to acquire quality assets at discounted prices. This is the core strategy of value investors like Buffett.
The unique risks of the crypto market: Unlike traditional quality companies, crypto assets lack a stable cash flow moat; their 'intrinsic value' relies more on future network effects and adoption rates, making it difficult to measure precisely. Therefore, 'buying against the trend' is more like 'betting on future possibilities' rather than calculating current safety margins.
The extreme importance of position management: The author mentions having increased their position to 80% and plans to approach a full position at specific levels (BTC 70,000, ETH below 2,000). This is a very high-risk personal strategy and is not universally applicable. Its implicit prerequisites are: 1) The funds invested are long-term idle funds that cannot be used; 2) There is extremely strong long-term belief in the target; 3) The ability to withstand psychological and financial pressure if the position continues to be halved or deeper. For most investors, 'not cutting losses during a crash' is already a successful contrarian behavior, rather than having to 'significantly increase positions during a crash.'
IV. Macroeconomic relations and liquidity transmission: The US dollar remains the ultimate 'oxygen.'
The current liquidity exhaustion in the crypto market is closely related to the global USD liquidity environment.
The ultimate impact of the dollar tide: The crypto market seems independent, but its main trading pairs (BTC/USD, ETH/USD) and stablecoin system make it an extension of USD liquidity at the highest end of global risk appetite. When the Federal Reserve tightens policy and real USD interest rates rise, global USD flows back, and the first to be withdrawn is the crypto market, a type of high volatility and high risk 'marginal liquidity.'
Macroeconomic interpretation 'unrelated to the value itself': This reflects that in a tightening cycle, all assets must first undergo 'liquidity reassessment' before 'value reassessment.' At the current stage, the market is pricing in the excessive liquidity of the past few years. Only when the liquidity shock subsides (such as when a signal of a shift in Federal Reserve policy appears) will asset prices realign with fundamentals.
V. Rational response framework: From emotional management to strategy layering.
In the face of irrational declines, a clear action framework is far more important than predicting the bottom.
Step one: Psychological preparation (applicable to everyone).
Acknowledge feelings, isolate decisions: Allow yourself to feel panic, but completely separate 'emotional reactions' from 'investment decisions.' Decisions should be made when calm.
Historical reflection: Revisit historical candlesticks and confirm that 'this time is no different'; extreme volatility is an inherent part of the market.
Step two: Position audit and strategy selection.
For those who are heavily invested and stuck:
Core strategy: Do not cut losses. Selling during a liquidity crunch phase is equivalent to jumping out of a building during a fire, causing the greatest casualties. At this time, one should enter 'hibernation mode,' close trading software, and wait for market volatility to decrease.
The only exception: If the holding is obviously a high-leverage altcoin with no fundamentals, consider stopping losses to preserve core capital.
For investors who still have cash:
Conservative strategy (recommended for most): Adopt a 'pyramid' layout rather than a 'full-throttle bottom fishing.' In the preset support range (such as BTC 70,000-75,000, ETH 2,000-2,200), invest the remaining funds in 3-4 batches, with each batch invested after a certain decline or time interval. This acknowledges the inability to predict the bottom but effectively reduces the average cost.
Observation strategy: If you cannot bear the risk, it is best to maintain a cash position and wait. The true bottom is a range and will provide ample entry time, usually with a process of double-bottom confirmation; there is no need to be anxious about missing the lowest point.
Step three: Rebuilding a long-term perspective.
Focus on essence: Ask yourself: Has my long-term logic for investing in Bitcoin/Ethereum changed? (e.g., digital gold narrative, global value internet settlement layer) If the answer is no, then volatility is just part of the process.
Prepare to wait: Liquidity repair and market confidence rebuilding take time, possibly months. Be prepared for a protracted battle.
Conclusion: Stay the course in the eye of the storm.
This crash is a brutal stress test, testing your depth of understanding of the assets you hold, your risk tolerance, and your emotional stability. The irrational phase of the market is precisely the process of eliminating leveraged speculators and testing long-term believers.
The true 'winner' is not the short-term expert who can buy high and sell low in every fluctuation, but the one who remains calm based on deep understanding during widespread market panic, and protects themselves through disciplined capital management, even positioning for the future. History has repeatedly proven that the lows created by extreme liquidity crises often mark the starting point of wealth distribution in the next cycle. At this moment, your calmness and discipline are more valuable than any tokens you hold.
