The cryptocurrency market is currently facing a significant downturn on February 5, 2026, primarily due to a "perfect storm" of macroeconomic uncertainty and geopolitical tensions.
Why is the Market Down?
Macroeconomic Shift: A major factor is the nomination of Kevin Warsh to lead the US Federal Reserve. Investors fear his "hard money" policy and potential to reduce the Fed's balance sheet, which would tighten liquidity and hurt "risk-on" assets like crypto.
Risk-Off Sentiment: Geopolitical escalations (particularly in the Middle East) have pushed investors to move capital out of volatile cryptocurrencies and into traditional safe havens like gold and cash.
Liquidity Trap: Thinned market liquidity, partly caused by a brief US government shutdown, has amplified price swings. With fewer buyers, even moderate selling pressure caused a "liquidation cascade," wiping out billions in leveraged long positions.
ETF Outflows: Large institutional investors have been withdrawing funds from Bitcoin and Ethereum ETFs, removing a key pillar of support that had sustained prices earlier in the year.
Market Comparison: Bitcoin vs. Altcoins
Historically, altcoins are more volatile than Bitcoin. When Bitcoin drops, altcoins typically drop much further as investors seek the perceived safety of the "market leader."
Market Comparison Analysis
As shown in the chart, the market crash has not affected all coins equally:
Bitcoin (BTC - Orange Line): Bitcoin remains the most resilient. While it has dropped significantly (approx. 16%), it acts as the "safe haven" of the crypto world. Its decline is steep, but it holds its structure better than others.
Ethereum (ETH - Blue Line): Ethereum shows higher sensitivity. It has dropped roughly 28%. Because Ethereum is the foundation for much of the DeFi and NFT sectors, a drop in market confidence leads to a faster exit from ETH than from BTC.
Altcoins (Green Line): This category, representing smaller-cap projects and "hype" coins, has been hit the hardest with a 40% crash. During a market panic, investors move their money out of high-risk altcoins first to protect their capital, leading to the "bleeding" effect seen on the chart.
Comparison Chart: BTC vs. ETH vs. Altcoins
Summary of the Downfall
The "Liquidation Cascade": The sharpest drop (noted in the chart) occurred when leveraged traders were forced to sell their positions automatically as prices hit their stop-losses, creating a domino effect.
Dominance Shift: During this crash, Bitcoin Dominance typically rises. This means even though BTC is falling, it is losing less value than the rest of the market, causing its share of the total market cap to increase.
