Bitcoin plunged, investors capitulated
Hopes for a mild bear market have been severely dashed. The crash on February 5 was a new moment of capitulation: investors were massively exiting at heavy losses. The trend is set, but how much deeper will we go? Simultaneously, another question is emerging in the Ethereum world. How do you keep a network scalable and healthy when adjacent networks begin to follow their own course? More on this in this edition of the Market News.
Market update
Last week, on Thursday, February 5, we saw capitulation. This is evident in the data by the combination of an accelerating decline, large trading volume, many realised losses, and widespread selling. It is also visible in sentiment, in the stories people tell. The hope that this is a temporary anomaly is fading, and the realisation is sinking in that we are in a bear market.
The capitulation was the culmination of a longer decline. Between January 14 and February 5, the price fell by 40% from ā¬84,000 to ā¬51,000. The lowest point is now 52% below the peak of the bull market at ā¬107,400.
Bear markets often have multiple capitulations. In the 2022 bear market, you could identify five such moments. Three of them are remembered for the collapse of tokens and companies, such as Luna and FTX.
In this bear market, we have so far seen three moments where investors have exited on a large scale at a loss and positions have been liquidated. We remember them by the date, such as the crash on October 10, because despite the market turmoil, no systems or companies have yet failed.
If this bear market were to be as long and deep as the previous one, the bottom would be around 75% below the peak in the fourth quarter. However, there are good arguments for a less deep bear market. For example, by looking at the price relative to the average purchase price of investors. This would result in a bottom at between 60% to 65% loss, but only slightly deeper than February 5.
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āArbitrum is not Ethereumā
With this statement, Steven Goldfeder, co-founder of Offchain Labs, the company behind Arbitrum, responded to a discussion that stirred up a lot of debate in the Ethereum world this week. Not because Arbitrum is turning away from Ethereumāquite the oppositeābut because Goldfeder wants to emphasise that Layer-2 networks (L2s) have gained their own role and identity. And this very insight forms the background for a new proposal from Ethereum figurehead Vitalik Buterin.1
Buterin warns that Ethereum is running into a less visible, but fundamental problem. Not so much with processing transactions, but with keeping track of all the data the network needs to function. The technical term for this is the state: the current condition of the network. Who owns what? Which smart contracts exist? And what is their status?
This amount of data is growing rapidly, by roughly a hundred gigabytes per year. For Ethereum's security and decentralisation, it is important that as many people as possible can run a node themselves. But the larger this āworking memoryā becomes, the heavier and more expensive it gets. This is where the friction lies.
For years, the answer was: scale up via L2s. These take over a large part of the activity and use Ethereum as a secure data layer. This approach has delivered a lot, but it also has drawbacks. The world of L2s has become fragmented and is increasingly developing into a collection of specialised networks, with their own rules, applications, and interests.
Vitalik is now drawing a conclusion from this: we must stop pretending that L2s are simply extensions of Ethereum.2 In other words, L2s must gain their own character and find their own niche. The speed benefits they offered Ethereum? The network itself must provide for that, on the base layer.
And so, a proposal is on the table.3 Ethereum must organise its working memory differently. Not everything needs to be immediately available at all times. A small, expensive, and highly reliable portion remains reserved for essential functions, such as accounts and contracts. Other data can be stored more cheaply or even be temporary, for example, when it comes to polls, auctions, or games.
By distributing storage more intelligently, Ethereum can grow without the network becoming unmanageable or dependent on L2s that market themselves as āEthereum, but fasterā.
Hyper-scaling, Buterin calls this.
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In other news
- CME flirts with its own āCME Coinā as part of the move toward tokenisation. CEO Terry Duffy said the exchange is exploring whether it can issue its own token on a (partially) decentralised network, alongside a separate ātokenised cashā solution it is building in collaboration with Google. The idea: more efficient collateral and faster settlement, but only with tokens from highly creditworthy parties. This is the first time CME has explicitly considered launching its own on-chain asset.
- Tether tempers mega-plans behind new funding round. The stablecoin issuer intended to raise up to $20 billion but appears to be backing off after resistance from investors. Tether CEO Paolo Ardoino states that Tether does not need the money and is also āhappyā if āzero dollars are investedā. The investor reluctance is mainly due to the company's high valuation. There are also concerns about oversight and reservesādespite the high profits and well-filled cash reserves.
- Family offices remain notably aloof from crypto. According to JPMorgan's Global Family Office Report 2026, 89% of wealthy families have no exposure to digital assets. Gold is also avoided. Only 17% name crypto as a theme for the future; AI is given priority by far. Volatility and unclear correlations are keeping crypto out of the core portfolio for the time being.
- White House seeks reconciliation between banks and crypto companies. The sticking point? Interest on stablecoins. A second meeting will follow on Tuesday between policy officials from major banks and industry organisations on the question of whether crypto companies should be allowed to pay interest on stablecoins. Banks fear a flight of capital from deposits. Crypto believes that banks are unfairly protecting their monopoly. The outcome is crucial for the further handling of the Clarity Act and thus the further development of US crypto regulations.
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Satoshi Radio: The most recent episode of Satoshi Radio focuses on the bear market. Bitcoin plummeted, falling below $70,000. How do investors navigate such a phase? How to assess if news is mostly FUD, or actually says something about the state of the market? Listen in for a look at the price, macro figures, on-chain data, andā¦ the potential shape of a next cycle.
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