Bitcoin, the world's largest cryptocurrency, experienced a severe downturn, accelerating its decline during Thursday's U.S. stock market session to around $63,000. This represented a daily drop of 12%, marking its lowest level since October 2023. In early Asian trading on Friday, Bitcoin fell a further 4.8%, hitting a low of $60,033. By the time of reporting, the price had recovered to $65,605. Since reaching its peak last October, Bitcoin has fallen more than 48% cumulatively, with its total market capitalization shrinking from $2.48 trillion to $1.27 trillion. A series of brutal forced liquidations in October last year weakened market confidence and have kept the cryptocurrency market in a downtrend. This week, selling pressure accelerated with the unwinding of leveraged bets and increased overall market volatility. According to data from CoinGlass, approximately $2.3 billion in leveraged long positions across all cryptocurrencies were liquidated in the past 24 hours.

Rachael Lucas, an analyst at BTC Markets, stated, "Almost no one is willing to step in front of this price movement, especially considering this sell-off is largely driven by forced liquidations. Repeated failures to hold key support levels have altered market behavior." Notably, Bitcoin has now fallen below the crucial psychological level of $70,000. This price point was where Bitcoin traded before the 2024 U.S. election and served as the starting point for the crypto rally following Trump's victory. However, after Bitcoin briefly dipped below $70,000 during early U.S. trading on Thursday, market panic spread rapidly. Some market observers believe that losing the $70,000 level could trigger a larger-scale sell-off in the short term. Lucas pointed out that traders are now focused on whether Bitcoin can hold the $60,000 support level. She added that a failure to hold this level could see "downside potential extend to the $55,000 range."

The sharp correction has prompted warnings from some market participants. Carmelo Alemán, a trader and analyst at CryptoQuant, pessimistically stated that Bitcoin has entered a bear market. He cautioned that trading patterns for Bitcoin spot and futures are now clearly "bearish," with the market in a "capitulation" phase where most participants will face losses. Paul Howard, a director at market maker Wincent, admitted that he does not believe Bitcoin will reach new all-time highs again in 2026. Michael Burry, who gained fame for shorting the U.S. housing market before the 2008 financial crisis, warned that Bitcoin's plunge could evolve into a self-reinforcing "death spiral," causing lasting damage to companies that aggressively accumulated the cryptocurrency over the past year. In a blog post on Monday, Burry stated that Bitcoin's nature has been exposed as a purely speculative asset, failing to act as a hedge against currency debasement like precious metals. He suggested that if Bitcoin continues to fall, it could quickly impair the balance sheets of major holders, forcing sell-offs across the entire crypto ecosystem and triggering massive value destruction. "A disturbing scenario is now within sight," Burry wrote. He noted that a further 10% drop could see Strategy, the world's largest corporate crypto treasury, face billions in losses with "capital markets largely closed to it." He added that further declines could force Bitcoin mining companies into bankruptcy.

Michael Saylor, founder of Strategy, emphasized that the company currently faces no immediate financial pressure. It is not facing margin calls and does not anticipate being forced to sell Bitcoin. Strategy has also raised a $2.25 billion cash buffer through stock offerings, sufficient to cover interest payments and dividends for the next two years. However, if Bitcoin fails to rebound or investor demand for its stock dries up, the company's room to maneuver will continually shrink. Burry wrote, "There is no intrinsic utility value reason for Bitcoin to stop or reverse its decline." He stated that neither corporate treasury holdings nor the newly launched spot crypto ETFs can indefinitely support its price or prevent catastrophic outcomes during a sharp decline. He pointed out that nearly 200 public companies now hold Bitcoin, which, while expanding market demand, does not make treasury assets permanent. These assets must be marked to market and included in financial reports. If Bitcoin's price continues to fall, risk managers will begin advising these companies to sell these assets. Burry added that the emergence of spot ETFs has instead amplified Bitcoin's speculative nature while increasing its correlation with the stock market. Data shows Bitcoin's correlation with the S&P 500 has recently approached 0.50. Theoretically, forced liquidations accelerate rapidly as losing positions grow.

Richard Farr, Chief Market Strategist and Partner at Pivotus Partners, issued an extremely pessimistic forecast, setting a price target of zero for Bitcoin. Farr stated, "Our price target for Bitcoin is zero. This is not for sensational effect but is mathematically derived." He argued that Bitcoin has not served as a hedge against the U.S. dollar but is instead "a speculative instrument correlated with the Nasdaq index." He also believes Bitcoin faces insurmountable obstacles in achieving institutional adoption or becoming a legitimate medium of exchange. In a social media post, he wrote, "No serious central bank will hold an asset whose float is controlled by Michael Saylor." Farr also criticized Bitcoin's environmental impact, stating that miners are "bleeding losses" and the Bitcoin network is "extremely inefficient as a transaction processing system, wasting vast amounts of energy."

Analysts offered several explanations for the cryptocurrency's sharp decline, including slowing fund inflows, deteriorating liquidity, and reduced macroeconomic appeal. Unlike gold and silver, which hit record highs driven by global tensions and concerns over dollar devaluation, Bitcoin has failed to respond to typical drivers like a weaker dollar and geopolitical risks. Furthermore, with the rise of prediction markets, many crypto traders have reduced interest in the crypto economy, turning instead to event betting. Persistent institutional outflows are a key factor. U.S. spot Bitcoin ETFs have experienced massive redemptions, becoming a core pressure point on Bitcoin's price. According to Deutsche Bank data, these funds saw outflows exceeding $3 billion in January 2026, around $2 billion in December 2025, and approximately $7 billion in November 2025. Since the market turned in October 2025, institutional investors have been selling billions of dollars in Bitcoin exposure monthly. This sustained selling pressure indicates waning interest from traditional investors and a growing overall pessimism towards cryptocurrencies. Retail participation has also declined simultaneously. Deutsche Bank's own dbDatainsights survey shows U.S. consumer cryptocurrency adoption rate is currently about 12%, down from 17% in July 2025, indicating a broad-based loss of interest. Institutions reducing Bitcoin exposure has led to lower trading volumes, exacerbating price declines. Thinner liquidity makes the market react more violently to negative news, creating a vicious cycle.

Stalled regulatory progress is another factor weighing on cryptocurrencies. Despite early legislative advances, regulatory uncertainty has hampered Bitcoin's performance. The bipartisan Clarity Act for Digital Asset Markets has been stalled in Congress for months. The bill aims to establish a framework for digital asset classification and designate the Commodity Futures Trading Commission as the primary regulator for the industry. The delay stems from disagreements between crypto and lobbying groups over the treatment of stablecoin rewards. The Senate Finance Committee released a draft but it hasn't gained universal acceptance, and a committee vote has been postponed. The Senate Agriculture Committee has also advanced its version of the bill. Reports indicate the White House has urged relevant lobbying groups to reach an agreement by the end of February. The loss of regulatory momentum has hindered the portfolio integration and liquidity deepening trends Bitcoin showed earlier in 2025. A previous Deutsche Bank report noted that early regulatory progress helped lower Bitcoin's volatility in early 2025. Currently, Bitcoin's 30-day volatility has rebounded to 40.72, climbing to levels last seen in late October, compared to just 26 a week ago.

However, Citi Research suggests that the passage of U.S. market structure legislation could be a potential catalyst, potentially shifting market sentiment and restoring inflows. History shows that positive regulatory news is a key factor in boosting investor confidence—ETF inflows increased following both the November 2024 election and the passage of the GENIUS Act in July 2025. Additionally, Bitcoin is highly sensitive to U.S. banking liquidity, and the potential for the Fed, under Kevin Warsh's leadership, to shrink its balance sheet adds another layer of concern. Warsh has historically held hawkish views, advocating for "balance sheet reduction ahead of interest rate cuts." Citi Research indicates Bitcoin tends to be very sensitive to changes in U.S. bank reserves and, consequently, to changes in the Fed's balance sheet. The possibility of a "crypto winter" is also heightening market anxiety. Previous Citi research found that while 20% corrections are common for Bitcoin, the current decline of over 40% from its peak is approaching a critical level—historically, breaches beyond this level have led to prolonged "winters" characterized by deep, multi-year bear markets. Citi emphasizes this is not its base case scenario, but historical precedents keep investors vigilant. Past "crypto winters" were characterized by long durations and deep drawdowns, distinct from typical 20% corrections. Deutsche Bank's rates strategists suggest potential reductions in reserve management purchases. Given the sensitivity of Bitcoin and other digital assets to U.S. banking liquidity, this could pose an additional headwind.