During the 2025 Spring Festival, while most people were eagerly anticipating the red envelope market, the cryptocurrency market opened with a crash. On February 3, Altcoins experienced the most brutal massacre in history, with the median single-day decline of the top 100 cryptocurrencies by market capitalization reaching 44%, and even large-cap coins like ETH fell by 34%. This crash led to the liquidation of about 700,000 people, with a total liquidation volume of $10 billion, both setting new historical highs.
However, it is worth noting that apart from the news of Trump's additional tariffs, the market had almost no obvious negative factors. Therefore, this sudden crash was more like a carefully planned bear raid on the bulls.
First, the cryptocurrency market has seen a Spring Festival red envelope rally for 7 consecutive years since 2018, causing many investors to place heavy bets during the 2025 Spring Festival. Secondly, ETH plunged 15% in the last minute, and more than half of the liquidation volume was completed within that minute. Finally, driven by the Trump family's continuous increase in holdings and the positive expectations for the Ethereum upgrade, the market had formed a consensus on the upward trend of ETH, leading to a situation of "sell the news" during the decline.
Although this round of decline has dealt a devastating blow to the bullish forces, it has effectively solved two long-standing problems in the market: "high existing positions" and "strong expectations but weak reality". After this decline, the holdings of Altcoins decreased by 54%, far exceeding the drop in prices. This means that a large number of investors actively or passively exited the market during the decline. In addition, the market capitalization of Altcoins dropped from 9.8% on February 1 to 7.8% on February 3, refreshing the lowest record in nearly 3 years. Therefore, under the existing pattern, this round of decline has actually freed up liquidity and valuation space for the continuation of the structural market.
Since the approval of the ETH ETF, every major correction in ETH has been accompanied by outflows of ETF funds. However, in this round of decline since February 1, the ETH ETF has seen strong inflows of funds, indicating that US stock market funds have chosen to buy the dips during the irrational decline of ETH. In addition, during the ETH plunge, the net outflow of cryptocurrency derivatives exchanges reached 300,000 ETH, the highest level since August 2023, indicating that the selling pressure from existing positions has weakened significantly. Overall, the author believes that the decline of ETH on February 3 was mainly due to overheated sentiment and chip game. With no change in the fundamentals, ETH will continue to return to the valuation range of $3,200-$3,500 after a brief adjustment.
In this round of market decline, the AI and MEME sectors have become the hardest hit, with the sector indices falling by 66% and 63% respectively. Historical experience shows that strong sectors often see a technical rebound when they are severely oversold in the short term. For traders who are keen on buying the dips, betting on the oversold rebound of the AI and MEME sectors is undoubtedly a good choice.
However, compared to MEME, the rebound in the AI sector is more promising and certain, for three reasons: 1) AI remains one of the most certain investment themes in the global capital market in 2025. In the past month, the "Warren Buffetts" on Capitol Hill have continued to aggressively buy call options on AI companies. 2) The US tech giants are firmly committed to AI, with the AI Seven Giants planning to invest $300 billion in the AI field in 2025, 1.5 times the amount in 2024. 3) With the breakthrough of DeeSeek, a new round of cost reduction and efficiency improvement revolution is unfolding in the AI field, similar to the evolution of public chains towards low Gas cost and high scalability, which will ultimately drive the large-scale application of AI.
In terms of trading the AI theme, investors can focus on the oversold rebound opportunities of previously strong coins such as AI16Z, VIRTUAL, and SWARM in the short term, and continue to chase the new hot spots in the AI sector in the medium to long term. It is important to note that AI trading is a game of odds, and one should never bet heavily on any single trade.
