Bitcoin's earthquake in late January: sharp decline raises market questions

The cryptocurrency market has experienced a sharp downturn over the past week, shaking investor confidence, as Bitcoin faced a wave of intense selling pressure. This market earthquake was caused by the simultaneous impact of multiple factors affecting the performance of the world’s largest digital currency.

Bitcoin Falls to Critical Levels

The flagship currency experienced a significant decline, dropping to around $81,000 during trading sessions, recording losses of over 6% at certain times during Asian and global trading hours. This decline served as a real test of historical support levels, with the price approaching its lowest point in the past two months.

The market impact was not limited to Bitcoin alone; this selling pressure extended across all major altcoins. Cryptocurrencies like Ethereum and Solana saw similar percentage declines, indicating a broad sell-off in the market.

Fear Indicators Reach Record Levels

Market sentiment indicators reflected unprecedented levels of fear. The Fear and Greed Index hit its lowest point since the beginning of the year, dropping to just 16 points. This record low indicates a state of genuine panic among traders and investors, suggesting potential buying opportunities for seasoned traders.

Underlying Economic Factors Behind the Market Shake

This sharp decline coincided with decisive political and economic decisions. The U.S. Federal Reserve announced interest rate stabilization and sent signals of a hawkish stance on combating inflation. This cautious approach by the Federal Reserve directly impacted high-risk assets like cryptocurrencies.

An additional factor deepening the decline was increased speculation about the appointment of Kevin Worch, a well-known figure with a tendency toward more aggressive monetary policy and a clear inclination to reduce financial liquidity. Such measures directly harm high-risk asset classes.

Profit-Taking and Sensitive Contracts

Profit-taking movements played a pivotal role in deepening the decline. Traders liquidated large long positions accumulated during previous bullish periods. This was particularly evident in futures and options contracts that were positioned at very sensitive price levels, accelerating the sharp drop.

Market Scenarios and Current Recovery

At that time, the market was at a critical crossroads: either stabilize above $80,000 and begin a gradual recovery, or slide further toward $69,000, where strong support levels also exist.

On the positive side, current data for the second week of February shows a notable rebound, with Bitcoin trading near $71,150, up 2.82% in recent hours. This suggests that the market has begun to absorb the initial shock and is gradually returning to a state of balance, reflecting the ongoing fundamental strength of the largest digital currency.