Why Is Bitcoin Crashing?

Bitcoin has been on a journey over the last few years, with big peaks and drops constantly dominating news headlines. And the past few months have been no different.

Back in October, Bitcoin peaked at $126,000. At the time, investors were seeing great returns and hailed Bitcoin as one of the best investments of the decade.

Fast forward to early February, and Bitcoin is trading at around $78,500. A big drop.

According to multiple outlets, more than $1 trillion has been erased from the market. And despite investors being used to crypto cycles of highs and lows, the latest drop has meant for many, this optimism has flipped to fear.

But what has caused the recent drop?

Trump Appoints New Federal Reserve Chair

Just this week, President Trump nominated Kevin Warsh as the next chair of the US Federal Reserve, which surprised the markets.

In short, given Trump’s criticism of high interest rates, investors expected him to hire a chair that would make cuts, and fast. And with interest rates lowered, other investments, like Bitcoin, become more appealing.

However, Warsh was the complete opposite. This meant investors realised rate cuts weren’t coming any time soon. At a time when interest rates are high, riskier investments like Bitcoin become less attractive, causing them to  drop.

High Sell Off Rates

Bitcoin was largely bought and sold through platforms that hosted Bitcoin exchange-traded funds (ETFs). This made it easier for people, businesses and investors to buy it.

The problem is, many people piled in when Bitcoin was climbing, but as soon as it started dropping, a huge sell off happened to cover their losses.

This drove the price down even lower, wiping even more off the market.

A Big Drop Signals Panic

Bitcoin traders tend to look for key milestones to signal buying or selling. For many, this was around the $80,000 mark.

As one Bitcoin analyst told Forbes a few days ago, “A break below the key $80,000 psychological level could accelerate selling pressure once again”.

As previously mentioned, Bitcoin did drop below $80,000. This caused even higher sell-offs, driving the price even lower.

Global Uncertainty Fuels The Fire

Assets rarely drop on their own. Over the last few days, multiple assets, including gold and silver, which were previously seen as highly reliable, also saw massive drops.

But it isn’t about a domino effect. All over the world, uncertainty is causing assets to fluctuate quickly. After all, investors like a sure bet, and anything that puts them on edge will affect the market.

Currently, investors are dealing with rising geopolitical tensions in the Middle East, a confusion around US tariffs and interest rate policies, and big drops in gold and silver.

Whenever investors get nervous, the first assets they sell are the riskiest ones. Historically, Bitcoin has fallen into that territory.

Will Bitcoin Bounce Back?

The golden question: Will Bitcoin ever bounce back to its former glory?

Well, historically, Bitcoin has always managed to bounce back. It happened back in 2018 and again in 2022 and every time it recovered bigger and better than before.

Like all assets, Bitcoin moves up and down. For some, the fact that it has always managed to bounce back is a sign that it will do again. For others, it’s confirmation that Bitcoin is, and has always been, an incredibly risky asset.

What Next For Bitcoin?

In the short term, it looks like this dip isn’t going away any time soon. Traders will want to cut their losses and others will withdraw due to panic.

But the truth is, crashes aren’t new to crypto, and anyone investing long term will know that highs and lows are just part of the journey.