Bitcoin's recent drop has erased all its gains since Donald Trump's election, with liquidity expected to remain low. The decline in Bitcoin and other digital assets is linked to concerns about overvalued tech stocks and uncertainty surrounding U.S. Federal Reserve policies.

"This ongoing contraction suggests a prolonged period of decline," said Thomas Probst, a research analyst at Kaiko.

Reduced liquidity leads to sharper price movements," he added. The prices of precious metals and cryptocurrencies plummeted on January 30 after Trump named Kevin Warsh as the next Fed chair, raising concerns about reduced demand for Bitcoin. Digital asset prices have fluctuated, dropping 20% before rebounding.

The uncertainty has raised questions about the future of Bitcoin and cryptocurrencies. October witnessed a major crypto sell-off following Trump's announcement of new tariffs on Chinese imports, leading to a liquidity washout.

"The flash crash in the fall burst the leverage bubble," said Denny Galindo from Morgan Stanley Wealth Management.

Despite Trump's previous support for crypto, Bitcoin fell below $61,000, the lowest level in months.

Some analysts believe that the worst may be over, with signs of a possible market bottom. Investors may see this as an opportunity to buy the dip.

Thin liquidity

Bitcoin's market depth has decreased, causing more significant price fluctuations. Market participants expect increased volatility in the near future.

Global equity indexes rose as investors returned to U.S. tech stocks, triggering a rise in Bitcoin above $70,000.

The Trump effect

Bitcoin surged post-Trump's 2024 election due to anticipated policy changes and promises. However, the impact of the Trump administration on crypto regulations remains uncertain.

Trump's involvement in crypto projects and the creation of a national bitcoin stockpile have influenced market sentiments.

Despite initial optimism, the government's actual involvement in Bitcoin remains limited.