Bitcoin signage on the trading floor during the Plan B Forum Bitcoin Conference in San Salvador, El Salvador, on January 30, 2026. The conference brings together world leaders, technologists and entrepreneurs to discuss nation-state adoption of Bitcoin, the economy, financial freedom and freedom of expression. | Photo credit: Camilo Freedman
“This contraction has been going on for several months and is continuing, suggesting it will likely continue for some time,” said Thomas Probst, research analyst at crypto data provider Kaiko.
“Reduced liquidity translates into sharper and more erratic price movements,” he added. Precious metals and cryptocurrencies sold off heavily on January 30 after US President Donald Trump appointed Kevin Warsh as the next Fed chairman on expectations he could shrink the Fed’s balance sheet, reducing demand for bitcoin. Digital asset prices have fluctuated since then, falling to close down 20 percent on Thursday before recovering on Friday.
These moves have raised questions about the prospects for bitcoin and other cryptocurrencies in the coming year. The end of the year proved tumultuous: October also saw the largest crypto liquidation in history after Trump announced new tariffs on Chinese imports, wiping out liquidity that has yet to fully return.
“The sudden crash in the fall was like a pin that popped the leverage bubble,” said Denny Galindo, investment strategist at Morgan Stanley Wealth Management.
The Trump administration’s friendly attitude toward crypto gave bitcoin a big boost last year, sending it to an all-time high above $125,000 in October. Yet Trump’s introduction of pro-crypto policies in 2025 has not stopped the latest price declines.
Bitcoin fell below $61,000 on Thursday, its lowest level since a month before Trump’s election.
But some analysts have theorized that the worst may already be over. “There are several things that indicate we are very close to a bottom, if we haven’t already reached one,” said James Butterfill, head of research at crypto asset manager CoinShares, who added that some investors might choose to buy the dip. Sales by so-called “whales” — individuals or entities holding 10,000 or more bitcoin — are starting to slow, he said.
“I think a lot of investors are seeing this as an opportunity, rather than running for the hills,” he said.
Thin liquidity
Bitcoin’s average market depth of 1 percent — a measure of crypto tokens’ ability to absorb transactions without significant price fluctuations — was more than $8 million in 2025, but fell to about $6 million after October 10 — and is now about $5 million, according to Probst.
That means the amount of bitcoin available to trade at its current price has decreased, so that even relatively small orders are now causing bigger moves than before the October crash.
“It’s the trend in liquidity that is really concerning,” Probst said. Market participants are bracing for more volatility in the short term, says Andrew Moss, head of digital assets research at Jefferies.
“We see few bullish indicators that we may be approaching the bottom,” he said. Cryptocurrencies represent a small portion of global markets, but the intersections between the crypto world and the mainstream financial world – including stablecoin reserves, crypto-related stocks and banks’ exposure to crypto – have all grown in recent years. Bitcoin has become more closely correlated with stocks during periods of market stress, making it more sensitive to macroeconomic and geopolitical developments, Probst said.
Global stock indexes rose on Friday as investors returned to US technology stocks after a massive sell-off in the previous three sessions. The previous declines were driven by fears surrounding artificial intelligence spending. Bitcoin rose more than 10 percent above the key $70,000 level.
The Trump effect
Bitcoin soared after Trump was elected president in November 2024, as investors expected his administration to overhaul digital asset policies and fulfill certain campaign promises, including establishing a strategic bitcoin reserve.
Trump himself is involved in numerous crypto ventures, including an eponymous meme coin and a venture called World Liberty Financial that is run by his family.
The government moved quickly to answer the crypto industry’s biggest demand by imposing a new regime on the U.S. 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 could be introduced.
Bitcoin in particular was buoyed by Trump’s campaign promise to create a national bitcoin stockpile. Although Trump signed an executive order to create a bitcoin reserve from the cryptocurrency the U.S. government seized as part of the asset forfeiture, the government has not started buying bitcoins, Galindo said. “It got done, but maybe it wasn’t the big moment … that some people were hoping for before the inauguration,” he said.
Published on February 7, 2026
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