Following the latest sell-off, concerns are mounting that Bitcoin prices could face further declines after wiping out all gains made since the election of U.S. President Donald Trump, amid expectations that liquidity constraints will persist in the near term.

The drop in Bitcoin, alongside other digital assets, has coincided with investor unease over inflated valuations of technology stocks and uncertainty surrounding the U.S. Federal Reserve’s path toward interest-rate cuts.

In this context, Thomas Probst, a research analyst at crypto data firm Kaiko, said: “This contraction has been ongoing for several months, suggesting it is likely to persist for some time.”

He added: “Lower liquidity leads to sharper and more volatile price movements.”

Precious metals and cryptocurrencies saw a sharp decline on January 30 after U.S. President Donald Trump appointed Kevin Warsh as chair of the Federal Reserve, fueling expectations that he would reduce the central bank’s balance sheet—potentially dampening demand for Bitcoin. Since then, digital asset prices have experienced heightened volatility, falling by 20% on Thursday before rebounding on Friday.

These swings have raised questions about the outlook for Bitcoin and other cryptocurrencies over the coming year. The end of the year was already turbulent, with October witnessing the largest cryptocurrency liquidation event in history after Trump announced new tariffs on Chinese imports, draining liquidity that has yet to fully recover.

For his part, Denny Galindo, investment strategist at Morgan Stanley Wealth Management, said: “The sudden crash in the fall was the spark that burst the leverage bubble.”

Bitcoin received a strong boost last year from the Trump administration’s pro-crypto stance, reaching an all-time high above $125,000 in October. However, Trump’s announcement of supportive crypto policies for 2025 failed to halt the recent price declines.

Bitcoin fell below $61,000 on Thursday—its lowest level since a month before Trump’s election—before rebounding more than 10% above $70,000 on Friday, only to retreat again on Saturday.

Still, some analysts believe the worst may already be over. James Butterfill, head of research at digital asset manager CoinShares, said: “There are several indicators suggesting we are approaching a bottom, if we haven’t already reached it.” He added that some investors may view the downturn as a buying opportunity, noting that selling by so-called “whales”—individuals or entities holding 10,000 bitcoins or more—has begun to slow.

“I think many investors see this as a genuine opportunity rather than something to flee from,” he said.

Weak Liquidity

Probst explained that Bitcoin’s average market depth (1%)—a measure of the asset’s ability to absorb trades without significant price fluctuations—exceeded $8 million in 2025, but fell to around $6 million after October 10 and now stands at roughly $5 million.

This means that the amount of Bitcoin available for trading near the current price is shrinking, causing even relatively small orders to generate larger price swings than before the October crash.

“The direction of liquidity is what’s truly concerning,” Probst said.

Within this trend, Andrew Moss, head of digital asset research at Jefferies, noted that market participants are bracing for further volatility in the near term.

“We see very few positive signals suggesting we may be nearing the bottom,” he said.

While cryptocurrencies account for a small share of global markets, the points of intersection between crypto and traditional finance—including stablecoin reserves, crypto-related equities, and banks’ exposure to digital assets—have grown significantly in recent years.

Probst noted that Bitcoin has become more correlated with equities during periods of market stress, making it increasingly sensitive to macroeconomic and geopolitical developments.

On Friday, global stock indices rose as investors gradually returned to U.S. technology stocks following a broad sell-off over the previous three sessions, driven by concerns over artificial intelligence spending.

The Trump Effect

After Trump’s election as U.S. president in November 2024, Bitcoin prices surged as investors anticipated sweeping reforms to digital asset policy and the fulfillment of campaign promises, including the creation of a strategic Bitcoin reserve.

Trump has been involved in several crypto ventures, including a digital token bearing his name and the “World Liberty Financial” project run by his family.

The administration moved quickly to meet key demands from the crypto sector, introducing a new regulatory framework at the U.S. Securities and Exchange Commission and passing legislation to regulate dollar-pegged cryptocurrencies. However, it remains unclear what additional pro-crypto measures may follow.

Bitcoin, in particular, benefited from Trump’s campaign pledge to establish a national Bitcoin stockpile.

Although Trump signed an executive order creating a Bitcoin reserve composed of digital assets seized by the U.S. government through asset forfeitures, the government has not made significant purchases of the cryptocurrency, according to Galindo.

“It was created, but perhaps it wasn’t the major catalyst some had hoped for ahead of the inauguration,” he said.