The "identity crisis" of Bitcoin in early 2026 has seen it fail as a traditional hedge, instead trading as a high-volatility risk asset. Key drivers of the fall include:
Geopolitical and Trade Tensions: The primary catalyst in early 2025 was the announcement of major U.S. tariffs (25% on Canada/Mexico, 10% on China), which sparked global trade war fears. This triggered a "risk-off" sentiment where investors fled volatile assets like crypto in favor of gold and silver.
Federal Reserve "Hawkish Pause": While the Fed cut rates three times in 2025, it adopted a hawkish pause in January 2026, signaling that aggressive easing might end. This "higher for longer" stance reduced the liquidity that typically fuels crypto rallies.
Institutional "Whale" Selling: Large holders who purchased near the $126,000 peak were forced into panic selling as prices dipped, realizing massive losses and creating sustained downward pressure. Spot Bitcoin ETFs also saw record outflows, including a $4.57 billion exit in late 2025.
Technical Breakdown: Bitcoin lost critical support at $91,000 and $85,000, leading to a cascade of leveraged liquidations. By February 2026, the 200-day moving average has begun sloping downward, signaling a transition from a bull market to a structural correction phase.