Bitcoin Market Volatility Intensifies: Over 700,000 Liquidations During Lunar New Year Plunge, Macroeconomic Factors and Regulatory Policies Key Drivers

Bitcoin Market Volatility Intensifies: Over 700,000 Liquidations During Lunar New Year Plunge, Macroeconomic Factors and Regulatory Policies Key DriversThe cryptocurrency market has recently experienced intense volatility, particularly during the Lunar New Year period. Bitcoin (BTC) prices saw multiple significant drops, sparking widespread concern

Bitcoin Market Volatility Intensifies: Over 700,000 Liquidations During Lunar New Year Plunge, Macroeconomic Factors and Regulatory Policies Key Drivers

The cryptocurrency market has recently experienced intense volatility, particularly during the Lunar New Year period. Bitcoin (BTC) prices saw multiple significant drops, sparking widespread concern. On February 3rd, BTC plummeted to $91,100, a roughly 7% intraday decline, triggering over 700,000 liquidations totaling more than $2 billion. This event not only dampened the festive market optimism but also fueled widespread apprehension about February's price trajectory.

Pessimistic Sentiment Prevails, High Volatility Persists

Bitcoins dramatic price swings were not isolated incidents. Throughout the Lunar New Year, BTC experienced several sharp, short-term drops. Ethereum (ETH) even plunged by 25% at one point, hitting a low of $2080.19, its lowest level in nearly a year. The top 200 cryptocurrencies by market capitalization generally declined, resulting in a prevailing pessimistic market sentiment.

Even with a slight BTC price rebound to $98,240.1 on February 6th (a 0.5% increase in 24 hours), nearly 90,000 liquidations still occurred within the same period, totaling $180 million, indicating persistent high volatility.

Multiple Headwinds Batter the Market

The recent Bitcoin price crash wasn't caused by a single factor but rather a confluence of negative influences.

First, macroeconomic uncertainty played a significant role. Bitcoins repeated failure to break through the $106,000-$107,000 resistance level demonstrated the market's pressure at higher prices. Policy changes under the Trump administration and shifting market expectations regarding the Federal Reserve's policy path further exacerbated volatility. While the market initially anticipated interest rate cuts this year, the Fed's latest statement maintained a cautious stance, keeping interest rates high. This increased the cost of capital, somewhat suppressing liquidity in the digital asset market.

Second, El Salvador's revocation of Bitcoin's legal tender status cast a shadow over the crypto market. The Salvadoran Congress overwhelmingly passed legislation to remove Bitcoin's legal tender status, a stark contrast to the country's previous strong support for the cryptocurrency. This move came under pressure from the International Monetary Fund (IMF), which made "reducing Bitcoin risks" a condition for approving a loan to El Salvador. Following the amendment, El Salvador will strengthen its regulation of digital assets, restrict Bitcoin-related economic activities, and remove government participation in crypto e-wallets. This event is considered a significant setback for cryptocurrency's mainstream adoption.

Furthermore, the explosive popularity of the Chinese AI large language model, DeepSeek, indirectly impacted the cryptocurrency market. The release of DeepSeek's open-source model, DeepSeek-R1, which achieved near GPT-3 performance at a lower cost, sent shockwaves through the global AI industry, prompting investors to sell shares in US AI giants and liquidate cryptocurrency holdings, further intensifying market volatility.

Divergent Institutional Views: Optimistic Predictions and Risk Warnings Coexist

Despite the recent market downturn, some institutions remain optimistic. Standard Chartered Bank predicts that Bitcoin's price could reach $200,000 by the end of 2025 and $500,000 by 2028. This forecast is based on the widespread adoption of spot Bitcoin ETFs and a decrease in volatility. Standard Chartered believes that as the US spot Bitcoin ETF market matures, Bitcoin's volatility will gradually decrease, institutional inflows will continue to grow, and this will drive long-term price increases.

However, not all institutions share this optimism. MicroStrategy, despite nearly doubling its Bitcoin holdings, still reported a $670.8 million loss in the fourth quarter of 2024. This performance directly reflects the high-risk nature of Bitcoin investment. The company lowered its BTC return target to 15%, revealing financing constraints amidst rapid expansion. Experts also point out that for most publicly listed companies, Bitcoin investment is more suitable as a supplementary asset allocation rather than a core business replacement. Bitcoin's high-risk profile makes it more suitable for investors with a strong speculative appetite, rather than traditional businesses seeking stable operations.

Gao Zelong, a member of the Ministry of Industry and Information Technology's Metaverse Standardization Committee and a senior researcher at the International Blockchain and Cryptocurrency Association, also noted that under the current market conditions, investing in Bitcoin carries significant risks and uncertainties. Publicly listed companies using Bitcoin investment as their main business face considerable risks and controversy. The high volatility and speculative risks of Bitcoin could lead to unstable financial performance and increased operational risks for listed companies.

Trump Administration's Policy Tailwinds Already Priced In, Market Needs New Stimulus

Although President Trump fulfilled his promises and introduced several policies supporting cryptocurrencies, including establishing a cryptocurrency task force and promoting stablecoin legislation, Bitcoin's recent performance suggests the market hasn't responded positively. Market participants believe that Bitcoin's current price is already quite high, and without new positive news, substantial further price increases are unlikely.

Experts believe that the US virtual asset market is moving towards a more mature regulatory system, and the combination of market forces and compliance could drive further institutionalization of crypto assets. However, policy uncertainty remains, and investors need to be wary of potential volatility during the regulatory implementation process. They should avoid blindly chasing short-term policy benefits and instead focus on long-term market structural improvements and actual implementation effects.

Risk Management and Portfolio Allocation Are Crucial

In the face of Bitcoin's high volatility, investors should return to the fundamental principles of risk management and portfolio allocation. With increased global economic uncertainty, asset price volatility is likely to intensify. Bitcoin's financial attributes make it particularly sensitive to market liquidity and policy changes. Investors should avoid impulsive buying and selling driven by short-term sentiment, and instead develop more flexible investment strategies aligned with their risk tolerance to navigate potential continued market turbulence.

Summary:

The recent intensification of Bitcoin market volatility, driven by macroeconomic conditions, regulatory policies, and market sentiment, has resulted in significant price fluctuations and substantial liquidations. While some institutions remain optimistic about Bitcoin's future price trajectory, the high-risk nature persists. Investors should adopt a rational market perspective, strengthen risk management, and invest cautiously. The market needs fresh catalysts to break the current deadlock, and future price movements remain highly uncertain.