Bitcoin’s slump alongside other digital asset prices coincides with investor concerns about inflated tech valuations and the uncertain path of US Federal Reserve rate cuts.
February 07, 2026 at 02:49 pmShare current article via TwitterBitcoin’s slump alongside other digital asset prices coincides with investor concerns about inflated tech valuations and the uncertain path of US Federal Reserve rate cuts.
Bitcoin could drop further after wiping out all its price gains since the election of US President Donald Trump, as liquidity is expected to remain thin for the near future. Bitcoin’s slump alongside other digital asset prices coincides with investor concerns about inflated tech valuations and the uncertain path of US Federal Reserve rate cuts. “This contraction has been under way for several months and remains ongoing, suggesting it is likely to persist for some time,” said Thomas Probst, a research analyst at crypto data provider Kaiko.Precious metals and cryptocurrencies sold off heavily on January 30 after Trump named Kevin Warsh as the next Fed chair, due to expectations he could shrink the Fed’s balance sheet, reducing demand for bitcoin. Digital asset prices have seesawed since, declining to close down 20% on Thursday before rebounding on Friday. The moves have raised questions about the outlook for bitcoin and other cryptocurrencies in the year ahead. The end of the year proved to be tumultuous: October also saw the largest crypto liquidation event in history after Trump announced new tariffs on Chinese imports, washing out liquidity that has yet to fully return. “The flash crash in the autumn was this sort of pin that popped the leverage bubble,” said Denny Galindo, an investment strategist at Morgan Stanley Wealth Management. The Trump administration’s friendly stance toward crypto helped give bitcoin a major boost last year, sending it to an all-time high above $125,000 in October. Still, Trump’s introduction of pro-crypto policies in 2025 has not stemmed the latest price declines. Bitcoin fell below $61,000 on Thursday, its lowest level since a month before Trump’s election.”There are several things signifying that we are close to a bottom, if not having achieved it,” said James Butterfill, head of research at crypto asset manager CoinShares, who added some investors might choose to buy the dip. Selling by so-called “whales” — individuals or entities holding 10,000 or more bitcoin — has started to slow, he said. “I think a lot of investors are seeing this as an opportunity, rather than running for the hills,” he said. Bitcoin’s average 1% market depth — a measure of the crypto token’s ability to absorb trades without significant price fluctuations — was more than $8m in 2025 but fell to about $6m after October 10 and now stands at about $5m , Probst said. That means the amount of bitcoin available to trade at close to the current price has been shrinking, so even relatively small orders now cause bigger moves than they did before October’s crash.We see few bullish indicators that suggest we may be approaching the bottomMarket participants are bracing for more volatility in the short-term, said Andrew Moss, head of digital assets research at Jefferies.Cryptocurrencies represent a small part of global markets, but the points of crossover between the crypto world and mainstream finance — including stablecoin reserves, crypto-related stocks and bank exposure to crypto — have all grown in recent years. Bitcoin has become more closely correlated to equities in periods of market stress, making it more sensitive to macroeconomic and geopolitical developments, said Probst. Global equity indexes rose on Friday as investors crept back into US technology stocks after a huge sell-off in the previous three sessions. The earlier declines were triggered by fears about spending on artificial intelligence.Bitcoin soared after Trump was elected president in November 2024, as investors anticipated his administration would overhaul digital asset policy and fulfil certain campaign promises, including establishing a strategic bitcoin reserve. Trump is involved in numerous crypto ventures, including an eponymous meme coin and a venture called World Liberty Financial that is led by his family. The administration moved quickly to answer the crypto industry’s biggest ask by imposing a new regime at the US Securities and Exchange Commission and passing a law to regulate dollar-pegged crypto tokens. But it is not immediately certain what other crypto-friendly measures might come. Bitcoin in particular was buoyed by Trump’s campaign pledge to create a national bitcoin stockpile. Though Trump signed an executive order creating a bitcoin reserve from the cryptocurrency the US government has seized as part of asset forfeitures, the government has not embarked on a bitcoin buying spree, said Galindo. “It was created, but maybe it wasn’t the big moment some of those people before the inauguration were hoping for.”
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