The March Edition by Galaxy Asset Management
By Jianing Wu & Su Young L.
February ended on a volatile note, with markets deep in the red and selling pressure spilling into March. In February, BTC declined to $84,212 from January’s month-end of $102,000. The crypto market dropped by 27.9% [1] moving in tandem with a broader selloff of equities, where the S&P 500 Index also saw losses of 1.4%. The month was marked by a series of negative headlines, ranging from cooling speculative fervor in crypto to growing macroeconomic uncertainties.
Another major event, though it took place in early March, is already making an impact on the market. Last week, President Trump signed an executive order establishing a Strategic Bitcoin Reserve (SBR) and a U.S. Digital Asset Stockpile, directing the Treasury Department to manage forfeited BTC and other forfeited digital assets. The SBR will hold all forfeited BTC and cannot be sold, while the Treasury could develop budget-neutral strategies without using taxpayer’s money to acquire more. The Digital Asset Stockpile, on the other hand, will contain all non-BTC assets but prohibits further acquisitions outside of legal forfeitures. This distinction results in a big, key takeaway: as far as the U.S. government is concerned, there’s bitcoin, and then there’s everything else. To read more about our take on the event, please click here.
Meanwhile, we want to highlight the increasing institutional participation in the crypto space, echoing our investment outlook as regulatory progress creates more possibilities for institutional entry:
[1] Measured by the BGCI Index
001 Pump No More
Memecoins have been on a rollercoaster ride since the November election. The total market capitalization peaked at $127.6 billion on December 6, 2024, one month after election night [2]. The launch of $TRUMP coin, three days before President Trump’s inauguration, further ignited a speculative frenzy. The token surged 300% overnight, reaching an all-time high of $75.35 before experiencing a sharp selloff, now trading at $12.17 [3]. The release of $MELANIA coin three days later deepened skepticism, fueling concerns about the ethics of tying speculative assets to political figures. Critics argued that these political-themed memecoins damaged the industry’s credibility, reinforcing the perception that crypto remains more of a speculative playground than a legitimate asset class.
Concerns over politically affiliated tokens escalated further when Argentine President Javier Milei publicly endorsed $LIBRA on February 14. In a now-deleted post on X, Milei publicly endorsed $LIBRA, claiming that the token would “focus on encouraging the growth of the Argentine economy, funding small businesses, and Argentine ventures.” The token’s market cap surged to $4.5 billion within an hour before crashing by 80% just two hours after launch. The event bore the hallmarks of an insider-driven “rug pull,” with multiple influencers involved in promoting the token before its collapse.
As of February’s month-end, the daily memecoin transaction volume on Solana DEXs has declined by more than 90% from last year’s peak [4]. This drop in trading activity has also had a significant impact on Solana, as Solana activity is heavily comprised of coin launches and swaps, particularly driven by memecoins launched via Meteora, Pump.fun, and Jupiter Exchange.
On February 26, just 25,385 tokens were launched on Pumpfun, the least amount of tokens created on the platform in a single day since November 3, 2024, and 65% off the all-time high daily number of tokens created. Similarly, Raydium, Solana’s largest DEX and a major platform for memecoin trading, has plummeted in transaction volume since mid-January. At its peak, Raydium briefly overtook Uniswap in transaction volume – Ethereum’s largest and oldest DEX – largely due to the surge in $TRUMP and $MELANIA coin activity. With the fade of memecoin activity, Solana’s future growth will likely need to shift toward deeper DeFi usage and sustained user engagement.
[2] Data: CoinMarketcap
[3] Data: CoinMarketcap, as of 3/4/2025
[4] Data: DefiLlama, as of 3/4/2025
In response to growing concerns over political memecoins, Congressman Rep. Sam Liccardo introduced the Modern Emoluments and Malfeasance Enforcement, or MEME Act, to prohibit politicians from launching their own tokens, arguing that profiting from self-issued memecoins constitutes a form of corruption. While previous attempts to ban lawmakers from trading stocks have not succeeded, this bill faces similar obstacles and is unlikely to pass.
Meanwhile, the SEC released a statement last Thursday clarifying that memecoins do not qualify as securities under federal law, as they lack the characteristics of an investment contract and function “more akin to collectibles.” However, the agency warned that fraudulent schemes or misleading promotions could still bring certain memecoin projects under regulatory scrutiny. While this provides some legal clarity for the sector, it also reinforces the need for greater transparency and accountability in memecoin markets to prevent future abuse.
002 The SEC's Long, Tangled List of Questions
In early February, SEC Commissioner Hester Peirce published “The Journey Begins” discussing the 10 key priorities the SEC is focusing on, which we covered in our previous newsletter. On February 21, she published another statement titled “There Must Be Some Way Out of Here,” outlining 48 questions that the Crypto Task Force is actively examining while seeking public input. These questions span key regulatory issues, including broker-dealer rules, trading, custody, crypto lending, ETPs, and tokenized securities, anchoring upon a proper taxonomy for a potential regulatory framework.
What stands out about Peirce’s statement is not just the breadth of the questions but their complexity and volume. Compared to her earlier critiques of the SEC’s approach to crypto regulation, this statement highlights the previous administration’s lack of clear direction. Under Gensler’s leadership, the SEC prioritized enforcement over framework development, leading to regulatory uncertainty, wasted resources, and the exodus of offshore crypto firms to jurisdictions with lower compliance costs but weaker consumer protections. As a result, U.S.-based crypto innovation was stifled, leaving domestic firms at a disadvantage against less-regulated foreign competitors. The sheer scope of the SEC’s questions signals an attempt to “disentangle” the regulatory gaps left by years of enforcement-driven policymaking, and the process will likely be slow and complex.
Reinforcing this shift, the SEC has recently dropped lawsuits and enforcement actions against several prominent crypto firms, including Coinbase, Consensys, Robinhood Crypto, Gemini, Uniswap Labs, OpenSea, Kraken, and Cumberland DRW. These cases largely revolved around the classification of digital assets as securities – a core question that underpins all crypto-related securities law enforcement and regulation. By withdrawing these lawsuits and pausing pending investigations, the SEC appears to be reassessing its regulatory stance. If the agency is serious about reevaluating the securities status of digital assets, this could mark the beginning of a more structured and predictable regulatory approach.
003 Bybit Gets Hacked
Bybit, a Dubai-based crypto exchange, suffered the largest crypto theft in history, with over $1.5 billion stolen on February 21. The stolen assets primarily consisted of ETH and staked ETH derivatives. Within hours of the attack, blockchain investigator zachxbt provided evidence identifying North Korea’s Lazarus Group as the perpetrators – the same entity responsible for the Ronin Bridge hack in 2022, the second record-breaking crypto theft.
The attack exploited vulnerability in Gnosis Safe’s infrastructure, a third-party multisig technology provider. Lazarus Group first compromised a Gnosis Safe’s internal employee’s computer, altering a key variable in a proxy contract to redirect funds to their wallets. They then manipulated the signing interface, sending the modified contract for approval to other Bybit employees, who unknowingly completed the authorization. Once the transaction was approved, the stolen assets were swiftly transferred to new addresses and laundered through a complex web of wallets. Crypto forensic teams have been tracing the hacked funds, and 77% of the funds are still traceable while 20% has gone dark. Crypto exchanges, over-the-counter and peer-to-peer platforms have worked to freeze the stolen funds. So far, a small fraction of the assets – approximately 3% – has been successfully frozen.
This attack has reignited concerns about smart contract protocols’ security architecture, particularly its lack of native multi-signature capabilities. Unlike Bitcoin, which supports multisig at the protocol level, Ethereum relies on smart contracts for multisig functionality, making implementations more vulnerable to proxy contract exploits. This structural weakness highlights the need for enhanced security measures, such as stricter transaction verification and more resilient custody solutions. The hack serves as a stark reminder that smart contracts, while powerful, introduce unique risks that require rigorous auditing and oversight.
Despite this high-profile hack, illicit activity remains a small fraction of overall crypto transactions. According to Chainalysis' latest Crypto Crime Report, only 0.14% of total 2024 on-chain transaction volume consisted of illicit activity, underscoring that while security vulnerabilities exist, they do not define the crypto ecosystem.
Following the breach, Bybit remained solvent and continued operations without freezing withdrawals, preventing a liquidity crisis. To mitigate the liquidity gap, Bybit secured emergency funding from many industry participants, including FalconX, Wintermute, and Galaxy Digital.
Market initial reaction was relatively subdued – ETH saw a temporary 7% decline but recovered to pre-hack levels by February 24. However, crypto later experienced a significant drop alongside the broader market in the final days of February, driven more by macroeconomic factors than the Bybit hack itself.
004 Stagflation Fear
The markets closed out February deep in the red, with the selloff continuing into March. Crypto assets declined significantly, but this downturn was not isolated – the broader stock market also suffered heavy losses, particularly in tech stocks [5], which erased all post-election gains. The primary driver behind this volatility has been mounting concerns over weak economic growth and persistent inflation. The selloff began with Nvidia amid DeepSeek fears and continued from mid-February as retail investors sold ahead of Tax Day. Many retail favorites, which had been momentum-driven winners, saw sharp reversals, triggering systematic strategies and hedge funds to unwind positions. Investors are increasingly wary of the potential for stagflation, as economic indicators continue to paint a challenging picture.
At the same time, trade policy uncertainty is adding to the pressure. President Trump has continued advocating for aggressive tariff policies, with recent moves signaling broader and more forceful trade restrictions. As of March 4, the U.S. imposed 25% tariffs on Canada and Mexico, as well as an additional 10% tax on Chinese imports. Furthermore, the administration has threatened to impose 25% tariffs on the EU, escalating global trade tensions. These measures could place additional strain on the American economy, increasing costs for businesses and consumers.
Macroeconomic indicators, especially, pointed to weaker consumer confidence. U.S. retail sales fell 0.9% in January, marking the sharpest decline in two years – a consequence of persistent inflation, elevated borrowing costs, severe weather conditions, and rising debt delinquencies. Meanwhile, inflationary pressures remain. Core CPI rose 0.4% in January, its largest monthly gain since August 2023, and core PCE was revised higher. However, the latest reading suggests that inflation shows signs of cooling, and we expect this trend to continue as the historic January inflation readings tend to skew higher due to seasonal price charges at the start of the year. In addition, the market is expecting a stronger nonfarm payrolls figure. As a result, traders are now pricing in probability of three rate cuts in 2025, betting that the Federal Reserve will focus on economic stability.
Concerns over economic growth, coupled with tariff uncertainties, have fueled gold's resurgence over BTC. In February, US gold ETFs saw a net inflow $6.8 billion, while US spot BTC ETFs experienced $3.6 billion in outflows. Despite their shared reputation as store-of-value assets, BTC and gold have historically exhibited minimal correlation. Over the long term, their average 100-day correlation since 2010 has been close to 5%, implying little co-movement. The last time they displayed a meaningful positive relationship over 50% was in late 2020 when inflation expectations in the US started to rise toward 2%.
[5] Measured by the Nasdaq 100 Index
005 Our Takeaways & Predictions
Heading into March, we anticipate continued market volatility, reflected in elevated VIX readings and the backwardation of forward VIX versus spot VIX. Key factors to watch include tariffs, evolving geopolitical tensions, job reports, and inflation data.
It appears that the administration’s aggressive tariff policies are a deliberate effort to drive yields lower, even at the expense of market performance, in order to pressure the Federal Reserve into cutting rates. With 25% of U.S. national debt – approximately $9.2 trillion – set to mature in 2025, including $6.5 trillion between January and June, the Trump administration is highly incentivized to push for lower interest rates to enable Treasury refinancing at the most favorable levels.
In the crypto space, market movements are likely to be driven more by broader macroeconomic sentiment rather than crypto-specific developments, although any upcoming legislation can provide significant tailwinds.
Key Events to Watch:
Key Macroeconomic Data Releases:
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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