The Next Stop in the Digital Asset Rebound: Liquidity Repair or Trend Restart?

In late August, the digital asset market saw a significant rebound. Bitcoin briefly surged to around $81,000, marking a roughly 23% gain over the past seven days, while Ethereum traded near $2,500. Over the last ten days (August 17–26), U.S. spot Bitcoin ETFs recorded net inflows of approximately $2.601 billion, and Ethereum ETFs saw net inflows of about $1.058 billion, totaling roughly $3.659 billion.

The rapid pace of this rally has reignited market debate: Is this merely a technical correction following an oversold condition, or the starting point of a new trend?

U.S. Treasury buybacks provide an external catalyst for the market rally.

Chronologically, one of the primary drivers of this rebound stems from the U.S. Treasury's expansion of its long-term Treasury buyback program.

The U.S. Treasury increased the size of its long-term Treasury buybacks from approximately $2 billion to $4 billion per operation. The market interpreted this move as a marginal improvement in long-term Treasury liquidity, which briefly boosted risk appetite and served as one of the external catalysts for the price breakout. With U.S. debt levels and interest costs remaining elevated, and the U.S. dollar and Japanese Yen weakening阶段性ly, some capital has begun to reassess the allocation risks of traditional fiat assets. Consequently, investors have moderately increased their allocations to non-fiat assets such as gold and Bitcoin to hedge against macroeconomic and currency depreciation risks.

It is important to emphasize that this does not equate to a Federal Reserve rate cut or a new round of quantitative easing; rather, it involves repurchase operations conducted by the U.S. Treasury in the bond market. However, for trading markets, short-term fluctuations in long-term interest rates and the U.S. dollar are sufficient to influence capital allocation preferences toward risk assets such as equities, gold, and digital assets.

Against the backdrop of Bitcoin previously lingering in the $62,000–$67,000 range for an extended period, the marginal improvement in the macroeconomic environment provided a significant opportunity for a price breakout.

Short squeezes have become the primary amplifier of the upward momentum.

If Treasury buybacks and the recovery in risk appetite were the 'ignition factors' for the rally, then the concentrated forced liquidation of short positions (commonly known in the market as 'liquidations' or 'short squeezes') served as a key accelerator for this upward move.

Once Bitcoin broke out of its previous consolidation range, the substantial accumulation of highly leveraged short positions in the market began to incur losses. As prices continued to rise, trading platforms sequentially enforced liquidations, forcing short sellers to buy back Bitcoin and other digital assets to cover their positions. This created a chain reaction of 'price rise – liquidation – further price rise.'

According to data from CoinGlass, over $4 billion worth of short positions were liquidated in the crypto market during the two-day period from August 19 to 21. It should be noted that this liquidation volume reflects statistics from the crypto derivatives market, covering multiple assets, and does not imply that all these funds flowed directly into the spot market.

The distinctive feature of short squeeze-driven buying is that it does not fully represent investors actively raising their valuation expectations; rather, it results from the passive covering of losing positions. Therefore, while it can significantly push up prices in the short term, it may not be sufficient on its own to sustain a long-term trend.

Figure 1: Digital currencies, Source: Shutterstock

ETF inflows provide support for spot demand

In addition to macroeconomic factors and leveraged liquidations, the return of institutional capital is also improving the market's trading foundation.

Over the past 10 days, U.S. spot Bitcoin ETFs saw net inflows of approximately $2.601 billion, while Ethereum ETFs recorded net inflows of about $1.058 billion, totaling roughly $3.659 billion.

Therefore, this round of rebound can be summarized as follows:

Improved expectations for macro liquidity drove price breakouts; concentrated short squeezes amplified the upside; and ETF inflows provided certain support for spot demand.

Bitcoin Global Hashrate: Network Infrastructure Remains Resilient

Beyond price movements, the global hashrate of the Bitcoin network is also worth monitoring.

Public data shows that the Bitcoin network's hashrate remained around 0.9 ZH/s in August.

The maintenance of a high hashrate indicates that miners continue to invest in equipment and energy, meaning the security and attack resistance of the Bitcoin network have not significantly weakened.

Tokenizing traditional financial products unlocks long-term value potential

Rather than focusing on short-term price volatility, the more significant trend worth watching is the gradual integration of traditional financial products into blockchain infrastructure.

Currently, tokenized financial products have expanded beyond crypto-native assets to include money market funds, U.S. Treasury bonds, bank deposits, fund shares, and certain private credit products.

Take Franklin Templeton’s BENJI as an example: its underlying U.S. government money market fund uses a public blockchain for transaction and share recording. As of April 2026, the tokenized asset size associated with this product exceeded $650 million.

Developments in Hong Kong are particularly noteworthy. Since 2026, the Hong Kong Securities and Futures Commission has issued circulars regarding tokenized investment products and their secondary trading, clarifying that subject to conditions such as product authorization, information disclosure, client suitability, and platform regulation, secondary trading of certain tokenized open-ended funds via licensed virtual asset trading platforms may be permitted. The specific scope remains subject to regulatory requirements.

Furthermore, the Hong Kong Monetary Authority’s Project Ensemble has entered the EnsembleTX pilot phase, exploring real-value trading and settlement of assets such as tokenized HKD deposits and tokenized money market funds. In August 2026, HSBC disclosed that it and Standard Chartered had completed the first real-time tokenized deposit transaction on Swift’s blockchain-based ledger, signaling a shift from intra-institutional fund transfers to cross-bank settlements.

The core value of these products lies not merely in "tokenizing assets," but in enabling faster trade settlement, 24/7 asset circulation, and the direct use of financial assets for on-chain collateralization, financing, and liquidity management.

The International Monetary Fund believes that tokenization could improve asset settlement, liquidity management, and compliance enforcement; meanwhile, the European Securities and Markets Authority points out that the market is still in its early stages, with regulation, interoperability, and on-chain cash settlement remaining major constraints.

Figure 2: Swift’s Blockchain Ledger, Source: Shutterstock

After the rebound, what does the market need to validate?

Overall, this rally appears to be a rapid rebound driven by a combination of macroeconomic catalysts, capital inflows, and short squeezes.

In the short term, passive buying pressure from short liquidations may have already been partially absorbed. Whether the market can sustain its upward momentum will depend on continued inflows of active spot capital, rather than relying on forced deleveraging by highly leveraged shorts.

Going forward, three key signals warrant close monitoring:

– Whether net inflows into ETFs remain consistent;

– Whether the rally expands beyond Bitcoin to broader mainstream assets;

– Whether leveraged capital accumulates too rapidly again.

This article is for market observation and industry research purposes only. It does not constitute a recommendation, solicitation, or offer for any virtual assets, tokenized products, trading platforms, or investment strategies, nor does it provide any advice on investment, trading, or asset allocation. Digital asset prices are highly volatile; market participants should fully assess risks and comply with applicable laws and regulations in their jurisdictions. Data herein is current as of August 27, 2026, and market data may change with market conditions.

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