February 2026 Market Commentary

This commentary was written by Jianing Wu, with contributions from Su Lee and Christopher Rosa.

Consolidation Under Pressure

February marked a transition from January’s shock to a month of consolidation. While headlines remained heavy and volatility persisted, markets largely shifted from forced liquidation to range-bound repricing. Equities finished modestly lower, while gold extended its run above $5,200 per ounce. BTC posted its second consecutive month of double-digit losses, leaving Q1 tracking similarly to the weakness seen in Q4 2025, with ETH's quarterly performance following the same pattern. The dollar held firm throughout the month, offering none of the tailwind that might typically accompany a risk-off move for crypto.

The dominant macro overhang was geopolitical. U.S.–Iran tensions escalated meaningfully during the month. Markets simultaneously absorbed renewed tariff uncertainty after the Supreme Court struck down prior executive authority, prompting the administration to introduce a new 10-15% global tariff framework. This geopolitical layer sat on top of an uneven domestic backdrop: softer retail sales revived rate-cut expectations, stronger payrolls pushed back against that view, inflation cooled modestly, and GDP undershot forecasts. Risk appetite remained capped as investors navigated geopolitical tail risk alongside slowing growth momentum.

A separate but notable dynamic came from AI. Anthropic’s automation release rattled software equities, driving a sharp three-day selloff across high-multiple tech names as investors reassessed disruption risk and margin durability in an AI-accelerating environment. Crypto weakened in parallel.

In crypto, BTC’s early-month brief dip below $60,000 flushed leverage aggressively, pushing derivatives open interest to its lowest levels since last spring. Sentiment briefly turned panicky, with fear gauges plumbing historic lows and more than 40% of circulating BTC supply moving into unrealized loss, but positioning data suggested stress was approaching exhaustion rather than accelerating. At the time of writing, BTC had rallied above $73,000 as developments in the Middle East boosted optimism, with reports that Tehran indirectly contacted the U.S. to negotiate a deal.

ETF flows mirrored this transition. Outflows dominated the first two weeks of the month as institutional participation remained cautious, but the final two weeks saw a meaningful reversal, stopping the outflows at $650 million.

February also brought several institutional and regulatory developments with longer-term significance. BlackRock made its BUIDL onchain money-market fund available for trading on UniswapX, marking a notable step in TradFi's engagement with DeFi infrastructure. WisdomTree received SEC exemptive relief enabling 24/7 trading and instant onchain settlement for its tokenized Treasury fund, which is the first registered fund to do so under U.S. securities law. ING Deutschland opened retail access to crypto ETNs across BTC, ETH, and SOL, continuing the gradual normalization of digital asset products in Europe's banking system. These developments represent continued progress on the institutional adoption front.

Coming into March, although crypto’s YTD performance resembles the weakness of Q4 2025, the internal dynamics are healthier than the headline returns suggest. Leverage has been reduced, sentiment has washed out, and volatility has compressed into a defined range. Rather than signaling renewed deterioration, February resembles a base-building phase.

001 Vaults on the Rise

On Feb. 11, BlackRock, the world's largest asset manager by AUM, made its first direct move onto decentralized finance infrastructure, listing its $2 billion tokenized U.S. Treasury fund, BUIDL, for trading on UniswapX. Operating through Securitize, the integration allows pre-qualified, whitelisted institutions to trade BUIDL around the clock against stablecoins, with settlement executed atomically through smart contracts. BlackRock also made a strategic investment in Uniswap itself, acquiring an undisclosed amount of UNI governance tokens, marking the first time the firm has held a DeFi protocol token on its balance sheet. The move is significant not just for its scale but for what it signals: BlackRock is no longer merely tokenizing assets and keeping them within closed, institution-only venues. It is plugging them directly into open DeFi rails.

Against that backdrop, another form of institutional DeFi integration is quietly gaining momentum: vaults.

Bitwise Asset Management, best known for its crypto ETFs, joined Morpho as a vault curator, launching a USDC-denominated vault targeting up to 6% annualized yield. Days later, Apollo Global Management, a $940 billion alternative asset manager, announced a cooperation agreement with the Morpho Association to acquire up to 90 million MORPHO governance tokens over the next four years, which accounts for approximately 9% of total token supply, while collaborating on the development of onchain lending markets.

Morpho is a decentralized lending protocol built on Ethereum and Base. Its core product, vaults, are curated pools of capital deployed across segregated lending markets. Depositors supply assets, typically in stablecoins, and a curator allocates that capital across strategies designed to generate yield. These allocations can range from straightforward stablecoin lending against crypto collateral to markets backed by tokenized real-world assets, as well as blended exposures across multiple risk tiers. While the strategies may vary in structure, they ultimately express themselves through overcollateralized lending markets on Morpho. Curators earn a management or performance fee for their work, and all activity is executed transparently through smart contracts.

The vault structure is broadly analogous to an ETF wrapper: both are pooled vehicles where investors deposit capital and a manager makes allocation decisions, with performance tracked through a share price. The key difference is that vaults are non-custodial where assets remain under the control of smart contracts rather than a centralized intermediary, and the strategies are executed entirely onchain.

Vaults first emerged on Morpho in late 2023, but growth accelerated sharply through 2024 and 2025, fueled by the rapid expansion of onchain stablecoin supply and tokenized assets. Total assets under curation across Morpho's vault ecosystem grew from under $20 million in early 2024 to a peak of approximately $4.3 billion in October 2025, and stand at roughly $3.5 billion today.

The institutional involvement in Morpho is best understood as part of a broader sequencing of the tokenization trend. First, traditional assets are tokenized: treasuries, money market funds, private credit. Then, those assets need to be managed, deployed, and made productive. Vaults are the onchain infrastructure that makes that possible, offering curators the flexibility to bring TradFi-grade capital allocation strategies directly onto the blockchain. They also open a channel for offchain capital to access DeFi yield opportunities that were previously inaccessible without deep technical expertise.

What we are seeing today is early-stage. Bitwise's initial vault is a relatively conservative USDC lending strategy. Apollo's agreement is structured as a long-term, staged token acquisition rather than direct vault deployment. But the direction is clear: institutions are building within DeFi. As the tooling matures, we expect strategies to become more sophisticated, with private credit, structured products, and tokenized real-world assets all finding their way into curator-managed vaults. Regulatory clarity around custodianship and DeFi participation for regulated entities remains an open question, but the capital is moving anyway.

002 Ethereum Rollup Pivot

In the past five years, Ethereum’s L2s have served as an important solution to Ethereum’s scalability. In 2020, Ethereum mainnet processed only 15 transactions per second, far below traditional financial systems that handle thousands to tens of thousands. High demand often congested the network, delayed confirmations, and drove fees higher, all of which made the network harder to use for everyday users and developers. Early scaling discussions focused on increasing L1 capacity by expanding how much computation and data each block could carry. However, these solutions risked compromising Ethereum’s core principles of decentralization and security, because they could make it harder for individuals to run nodes and participate in network consensus. To address this impasse, Ethereum embraced a rollup-centric roadmap in 2020, which helped accelerate the adoption of “optimistic” and zero-knowledge (ZK) rollups, and then reinforced that direction with the March 2024 Dencun upgrade, which improved data availability for L2s. The upgrade introduced Proto-Danksharding, which added “blobs,” a dedicated, lower-cost data lane for rollups to publish transaction batches to Ethereum, making L2 execution and batching far more cost-effective at scale. This significantly improved the experience for users and developers on L2s, pushing throughput into the thousands of transactions per second and slashing fees from dollars to cents.

However, Ethereum co-founder Vitalik Buterin recently published an essay outlining a new path for layer-2 networks in the ecosystem, reflecting on how the rollup-centric vision has played out in practice. Some rollups were never designed to fully “scale Ethereum” in the strict sense, because they rely on stronger operator control or trusted bridges and therefore do not inherit Ethereum’s full guarantees. At the same time, Ethereum has expanded mainnet capacity and reduced fees through a higher gas limit and more data capacity for rollups via blobs, with further gas limit increases planned. As the base layer becomes cheaper and able to handle more on its own, the narrative shifts: L2s are no longer strictly necessary for scaling and instead become an option best suited to specific use cases and tradeoffs. Vitalik is arguing for a reset: stop treating every L2 as a shard-in-waiting, and push L2s to differentiate by adding capabilities beyond raw scaling.

Major L2 teams including Arbitrum, Base, Linea, and Optimism responded to the tweet in ways that highlighted healthy strategic diversity. In Vitalik’s trust spectrum framing, that diversity is expected. Some teams emphasize independence and governance, others focus on applications and users, some rally around native rollup infrastructure, and others accept tradeoffs while strengthening guarantees so correctness and withdrawals depend less on operator discretion.

To support this vision, Vitalik proposed new architecture including a native rollup precompile and a shift from asynchronous to synchronous composability. The native rollup precompile would let the network verify standard Ethereum Virtual Machine (EVM) execution directly, so L2s could inherit strong security for the core logic and only have to prove the correctness of any extra features they add on top. It will also pave the way for synchronous composability, where apps on different rollups can interact in the same user flow with near instant finality, instead of waiting across multiple blocks or relying on slower, asynchronous bridging. For L2s, it’s no longer just about generic scaling. It’s about building specialized environments that solve real problems while staying anchored to Ethereum. That could mean privacy-first rollups that make confidential transactions the default, ultra-low latency environments for real-time apps and AI workflows, or purpose-built social and identity networks that lean on Ethereum for security and final settlement. Even so, it remains an open question whether cheaper and roomier mainnet blockspace will meaningfully pull builders who defected to other chains back to Ethereum’s L1, or simply force L2s to prove they offer something Ethereum will not optimize for.

003 UK Enacts Crypto Framework

More than two years after the EU finalized Markets in Crypto-Assets Regulation (MiCA), the UK has formally enacted its own crypto framework under the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2026, passed by Parliament on Feb. 4, 2026. The regime will take full effect in Oct. 2027, with the application window for firms expected to open in 2026.

The breadth of the framework signals that the UK regulation is no longer treating crypto as peripheral asset and it is being integrated into the core financial systems architecture.

At first glance, the scope is as broad as MiCAR in Europe and more expansive than the CLARITY Act in the U.S. The Financial Conduct Authority (FCA) defines a wide perimeter of regulated activities including issuance, custody, trading platforms, dealing (as principal and agent), arranging, staking, market abuse and stablecoin issuance. Nearly all commercial crypto service providers will fall within the regulatory net. However, rather than constructing a standalone “crypto constitution” in the style of MiCA, the UK has chosen to embed digital assets into the existing Financial Services and Markets Act 2000 (FSMA) framework. Conduct rules, prudential requirements, disclosure obligations and market integrity provisions mirror those applied to traditional financial institutions. The regulatory anchor is not crypto specific innovative regulations but closer to the normalization of crypto activities to be part of the current financial services and supervision.

This structural choice differentiates the UK both from MiCA and from the U.S. CLARITY Act. MiCA establishes a bespoke, harmonized EU-wide regime with purpose-built token classifications (Asset-Referenced Tokens, Electronic Money Tokens, other cryptoassets), while the CLARITY Act takes a ground-up approach to building a new regulatory architecture for digital assets. The UK already benefits from a single-regulator model which allows comprehensive supervision without institutional fragmentation.

At the center of the UK framework is a general prohibition on public offers of qualifying cryptoassets. Unless an exemption applies, firms would be prohibited in marketing tokens to the public. Larger exempt offerings (≥£500k) will require structured disclosure documents covering risk factors, governance arrangements, token mechanics, underlying technology and conflicts of interest. Statutory civil liability for misleading statements introduces a formal compensation pathway for investors. In practical terms, the UK has copied existing prospectus-style accountability into crypto issuance. This mirrors MiCA’s emphasis on whitepaper disclosures and investor protection.

The FCA’s stablecoin regime is in line with U.S. banks’ stance on stablecoin yield in the CLARITY Act. U.S. banks have expressed concerns that interest-bearing stablecoins could accelerate deposit flight, reduce banks’ lending capacity and tighten credit conditions in stress scenarios. UK regulations similarly regard stablecoins as primarily payment instruments rather than yield-bearing investment vehicles. Holders are not permitted to receive yield directly or indirectly, reinforcing the policy objective of preventing deposit substitution that could weaken bank funding bases.

However, the UK appears more restrictive in operational dimensions on stablecoins. Redemption fees are constrained to reflect operational costs rather than profit generation, and third-party custodianship requirements limit balance sheet flexibility. By contrast, the GENIUS Act requires disclosure of fees but does not cap them at cost, preserving greater commercial optionality for issuers. The UK model could reduce incentives for smaller or newer entrants.

For the UK regulatory framework, the bigger question is not whether crypto firms can comply but whether the framework can optimize for growth. UK financial regulation has historically been criticized for leaning heavily toward consumer protection at the expense of innovation and growth since the global financial crisis in 2008. Applying traditional finance assumptions to decentralized or open-source ecosystems create grey areas around accountability and reporting obligations. In truly decentralized structures, identifying a single “responsible person” for disclosure and liability purposes may prove complex. This could result in compliance uncertainty and offshore migration for early-stage protocol launches.

The strong restriction on public offers also raises questions around the country’s considerations to compete in the digital assets ecosystem. Early-stage retail-facing token launches may find the UK economically unviable relative to other jurisdictions. The restriction on revenue-generating features for stablecoin issuers may limit incentives for challenger institutions seeking to disrupt incumbent payment rails. While the UK regime enhances investor confidence and institutional credibility, it may simultaneously narrow the pipeline of domestic experimentation.

004 Our Takeaways and Predictions

Looking ahead to March, uncertainty remains the dominant theme. Geopolitical tensions, particularly between the U.S. and Iran, continue to simmer, with markets increasingly focused on energy security. Iran’s geographic position along the Strait of Hormuz, a chokepoint through which roughly 20% of global oil supply transits, keeps energy prices and forward expectations highly sensitive to headlines.

At the same time, macro signals remain mixed. Inflation risks could re-emerge if energy prices firm. Rate cut expectations have been pushed further out, removing a near-term policy tailwind that markets had previously leaned on. Political uncertainty surrounding the upcoming midterm cycle adds another layer of unpredictability, reinforcing a backdrop where positioning is cautious rather than aggressive.

Despite this, crypto market structure appears healthier than it did during prior drawdowns. Leverage has reset, speculative excess has cooled, and long-term positioning remains constructive. While volatility is likely to persist in the near term, the foundation looks more stable, leaving room for a rebound should macro pressures ease or sentiment stabilize.

In short, March may be impacted by energy headlines, policy expectations, and geopolitical developments, but beneath the surface, risk assets, particularly crypto, are building a more resilient base.

Key Events to Watch:

• March 18: Fed Interest Rate Decision

Key Macroeconomic Data Releases:

• March 11: CPI, Core CPI

• March 13: JOLTS, Core PCE

To learn more about the topics covered in this month's newsletter, contact our team or reach out to your Galaxy representative.

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