Why crypto’s decline feels different this time

Since October, crypto markets have lost almost half of their value — $2.2 trillion of market cap gone in weeks. In past cycles, drawdowns could be linked to clear triggers like the FTX collapse or rate hikes. This time, fundamentals haven’t changed much.

Bitcoin has erased all of its post-election rally and is now down by 10% since Trump’s election. Many investors are confused. Over the last 60 days, the “fundamental picture” can look largely unchanged, yet prices keep slipping, relief rallies fail, and intraday moves feel jumpy. The better question isn’t “what changed in crypto?” It’s “what changed in crypto trading?” The answer is market structure: liquidations, sentiment, depth, and how quickly capital can now enter — and exit — the asset class.

The physical gold

It helps to compare today’s Bitcoin with 2003’s gold. In March 2003, the first gold ETF launched on the Australian Securities Exchange (ASX), followed by others on other exchanges. Gold’s identity didn’t change — scarcity is still scarcity — but the main drivers of price did. Once an asset becomes easy to buy and sell through mainstream wrappers, it becomes shaped by flows, portfolio rebalancing, hedging behaviour, and macro liquidity.

Before ETFs, owning gold at scale was more operationally difficult. After ETFs, gold exposure became a one-click portfolio decision. That’s the core shift: the market moves from “physical demand” to “allocation decisions.” Gold didn’t stop being a hedge, but it became more sensitive to the same forces that move other macro assets.

As instruments multiply, investors can gain gold exposure synthetically. That can improve liquidity in normal times, but it also means prices can move sharply on positioning and flows rather than physical supply and demand. When markets de-risk, flows dominate, and we have seen this first-hand with gold and silver in the same red wedding session that slashed Bitcoin’s enthusiasm in a matter of hours.

Bitcoin is living a faster, more reflexive version of this shift. The “digital gold” framing can still hold while it trades like a liquidity-sensitive macro instrument — because once wrappers and institutional participation scale, the asset becomes easier to size up and easier to sell down. Unlike gold, Bitcoin is also more volatile, more leverage-sensitive, and more prone to cascades when depth is thin.

The great liquidation

The timeline begins with the peak: crypto hits a record $4.3 trillion market cap on 6 October. Four days later, on 10 October, crypto records $19B in liquidations.

Big liquidation events don’t just move price — they damage the market’s ability to function normally. After a shock that size, liquidity providers step back, leverage gets repriced, and dip-buyers hesitate because cascades can form quickly.

After 10 October, the market doesn’t “snap back” like it often does in healthy risk regimes. Relief rallies fail to shift sentiment — a sign the market is no longer driven by belief, but by positioning and a lack of steady bids.

Then comes the “quiet” phase that isn’t really quiet: between November 15th and January 15th, Bitcoin is rangebound, with brief liquidation bursts and “gaps” in both directions. That isn’t normal consolidation; it’s a symptom. In strong markets, consolidation is a base for continuation. In fragile markets, it reflects shallow depth where large orders cause outsized moves because the book can’t absorb size smoothly.

Finally, the range breaks down on January 16th, and the decline accelerates. By February 5th, crypto erases $2 trillion in market cap — and the rest is known.

Decentralised but financialised

This downturn makes sense when you view Bitcoin as more financialised, and therefore more flow-driven. As the holder base expands into institutions and portfolio channels, Bitcoin increasingly trades like something that gets cut quickly when volatility rises or risk appetite falls. That doesn’t require a dramatic change in the “fundamental” thesis — only a change in positioning and liquidity.

With market depth still weaker since October’s peak, a single large seller can move price more than expected, especially if the drop triggers liquidations that force more selling. That’s how you get sessions where Bitcoin falls over $9,000, with $2,000+ drops happening in minutes, and selling pressure that feels constant — like institutional-sized flow pushing through a thin order book.

Since 24 January, $10B in leveraged positions have been liquidated, about 55% of the record seen on 10 October. That persistence matters. One liquidation day can be dismissed as a one-off; repeated liquidations over weeks become structural. They shape behaviour, suppress risk-taking, and keep liquidity thin because traders demand more compensation to hold risk.

In structure-driven markets, stabilisation is less about “good news” and more about the market regaining the ability to absorb size without cascading.

The simplest explanation for this bear market is also the most useful: crypto is experiencing a liquidity-driven, structural decline, not a sudden fundamental collapse. The numbers describe a market that took a shock and then failed to rebuild depth and confidence. Crypto didn’t just fall. It failed to recover. That’s why this bear market feels different.

If volatility is “here to stay” as uncertainty rises, then the path toward stabilisation likely depends on whether liquidity returns, liquidations fade, and sentiment reaches exhaustion. Until then, Bitcoin will keep behaving less like a pure narrative asset and more like what financialisation has made it: a flow-driven market where the structure — not the story — sets the tone day to day.

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