Bitcoin Faces Further Declines Amid Thin Liquidity and Investor Concerns

Bitcoin Faces Uncertain Future as Price Plummets Post-Trump Election

By Hannah Lang and Elizabeth Howcroft

NEW YORK, Feb 7 (Reuters) – Bitcoin, the leading cryptocurrency, has seen a dramatic decline, erasing all gains made since the election of U.S. President Donald Trump. Analysts warn that further drops may be on the horizon as liquidity in the market remains precariously thin.

The recent slump in Bitcoin’s value, which has mirrored declines across various digital assets, has been fueled by investor anxiety over inflated technology valuations and the unpredictable trajectory of U.S. Federal Reserve rate cuts. Thomas Probst, a research analyst at crypto data provider Kaiko, noted, “This contraction has been underway for several months and remains ongoing, suggesting it is likely to persist for some time.” He added that reduced liquidity can lead to sharper and more erratic price movements.

The sell-off intensified on January 30, following Trump’s announcement of Kevin Warsh as the next Fed chair. This decision raised concerns that Warsh might reduce the Fed’s balance sheet, thereby diminishing demand for Bitcoin. Following this, digital asset prices fluctuated wildly, with Bitcoin plunging nearly 20% on Thursday before staging a modest rebound on Friday.

The tumultuous end to 2025 saw the largest crypto liquidation event in history, triggered by Trump’s new tariffs on Chinese imports, which drained liquidity from the market. Denny Galindo, an investment strategist at Morgan Stanley Wealth Management, remarked, “The flash crash back in the fall was this kind of pin that popped the leverage bubble.”

Despite the Trump administration’s initially favorable stance towards cryptocurrencies, which propelled Bitcoin to an all-time high above $125,000 in October, recent price declines have raised questions about the sustainability of this bullish trend. Bitcoin fell below $61,000 on Thursday, marking its lowest point since before Trump’s election.

However, some analysts believe the worst may be behind us. James Butterfill, head of research at CoinShares, suggested that indicators point to a potential bottoming out. “There are several things signifying that we are very close to a bottom, if not having achieved it,” he stated, noting that selling by large holders, or “whales,” has begun to slow. “I think a lot of investors are seeing this as actually an opportunity, rather than running for the hills,” he added.

Liquidity Concerns

Bitcoin’s average market depth—a measure of its ability to absorb trades without significant price fluctuations—has plummeted from over $8 million in 2025 to around $5 million today. Probst expressed concern, stating, “It is the trend in liquidity that is truly concerning.” Market participants are bracing for continued volatility, with Andrew Moss, head of digital assets research at Jefferies, noting a lack of bullish indicators.

While cryptocurrencies still represent a small fraction of global markets, their intersection with mainstream finance has grown, increasing their sensitivity to macroeconomic and geopolitical developments. Bitcoin’s correlation with equities has intensified during periods of market stress, making it more vulnerable to external shocks.

On a brighter note, global equity indexes saw a rise on Friday as investors cautiously returned to U.S. technology stocks after a significant sell-off. Bitcoin also experienced a resurgence, climbing over 10% above the critical $70,000 mark.

The Trump Effect

Bitcoin’s meteoric rise following Trump’s election was largely attributed to investor optimism regarding potential regulatory overhauls in the digital asset space. The administration quickly addressed key industry demands, including a new regulatory framework for the U.S. Securities and Exchange Commission and legislation governing dollar-pegged tokens. However, the anticipated measures have yet to materialize fully.

Trump’s campaign promise to establish a national Bitcoin stockpile initially buoyed market sentiment. Although an executive order was signed to create a Bitcoin reserve from seized assets, the government has not engaged in a significant Bitcoin purchasing initiative, leading some to question the impact of these policies.

As the cryptocurrency market grapples with uncertainty, investors remain watchful, weighing the potential for recovery against the backdrop of a volatile economic landscape.

(Reporting by Hannah Lang and Elizabeth Howcroft; Editing by Lananh Nguyen and Anna Driver)