The cryptocurrency market has seen a sharp decline in trading volumes, largely influenced by geopolitical tensions and economic uncertainty. February witnessed a 21% drop in combined spot and derivatives trading volume on centralized exchanges, marking the lowest levels since October.
Additionally, inflationary pressures and shifting Federal Reserve policies have kept investors cautious, dampening the sector’s ability to sustain rallies. Financial strategists from Profititerra analyze the key drivers behind this market turbulence and what it means for traders moving forward.
Crypto Trading Volumes Plunge as Investors Retreat
image from Binance.com
February’s sharp decline in crypto trading activity underscores investor hesitation in the face of macroeconomic headwinds. According to recent market data, total trading volume on centralized exchanges fell to $7.2 trillion, a significant retreat from previous months.
Among spot trading platforms, Binance remained dominant, commanding a 27% market share. Other major players, such as Crypto.com (8.1%) and Bybit (7.4%), also held their ground, while Coinbase and MEXC Global rounded out the top five. However, the overall downturn in activity suggests that traders are treading carefully amid economic uncertainty.
The derivatives market also saw a steep decline, with CME—one of the largest institutional trading venues—experiencing a 20% drop in trading volume. Bitcoin futures activity fell by the same percentage to $175 billion, while Ether futures saw a 13% decline, settling at $35.9 billion.
The downturn coincided with the BTC CME annualized basis falling to 4.08%, the lowest since March 2023. Despite this, CME’s market share in derivatives trading grew to a record 4.67%, indicating that institutional traders remain engaged even as retail participation declines.
The impact of these shifts is evident in total open interest across all trading pairs on centralized exchanges, which fell 30% to $78.8 billion—the lowest level since November 2023. This reflects the heavy liquidations seen during recent market corrections, further illustrating the fragile state of the crypto sector.
Inflation Data Fails to Sustain Market Rally
Despite a brief rally following softer-than-expected U.S. inflation data, the crypto market failed to maintain its upward momentum. Bitcoin, which initially saw gains, retreated to $82,800, down 0.5% over 24 hours. The CoinDesk 20 index, which tracks the top 20 cryptocurrencies excluding exchange coins, stablecoins, and meme-coins, dropped 0.8% in the same period.
image from finance.yahoo.com
Ether experienced even greater losses, falling 3.5% to approximately $1,880. The ETH/BTC ratio, now at 0.022, has plummeted 67% since its peak in November 2021. This drop places it at levels last seen in April 2020, before the rise of decentralized finance (DeFi) projects like Uniswap and MakerDAO.
Although lower inflation numbers would typically be a bullish signal for risk assets like crypto, market confidence remains fragile. Analysts note that weeks of investor uncertainty have eroded sentiment, making it difficult for a single positive inflation print to restore optimism.
Tariffs, Inflation, and Fed Policy: A Risky Balancing Act
A major concern weighing on the market is the potential impact of aggressive tariff policies. Recent proposals to impose new trade restrictions on key economic partners have raised fears that inflation could become more persistent, complicating the Federal Reserve’s ability to implement rate cuts.
Market analysts suggest that higher tariffs could lead to inflationary pressures, making it harder for the Fed to justify monetary easing. At the same time, declining asset prices and growing job losses—exacerbated by government spending cuts—are increasing pressure on policymakers to lower interest rates sooner. The challenge for the Fed lies in striking a balance: cutting rates too early risks reigniting inflation, while delaying cuts too long could prolong economic stagnation.
Current market expectations indicate that the Fed may begin reducing interest rates as soon as May or June, with potential cuts totaling up to 100 basis points by October. This uncertainty has left investors in a holding pattern, further reducing risk appetite in the crypto market.
Equities Show Signs of Recovery Amid Crypto Weakness
While cryptocurrencies struggled to maintain momentum, traditional stock markets showed modest signs of recovery. The Nasdaq rebounded 1.2% after a steep decline in recent weeks, while the S&P 500 posted a 0.5% gain. These movements suggest that investors may be shifting focus toward equities in response to changing monetary policy expectations.
However, the broader economic environment remains uncertain. The interplay between tariffs, inflation risks, and the Fed’s response will continue to shape investor sentiment across both traditional and digital asset markets.
Conclusion
February’s crypto market downturn highlights the ongoing volatility driven by macroeconomic factors. With trading volumes at their lowest levels in months and inflation concerns still unresolved, investors remain cautious. Institutional interest appears to be holding steady, but retail participation has declined significantly. Moving forward, traders will need to navigate a complex landscape shaped by tariff policies, Federal Reserve decisions, and broader economic trends.
