Crypto Market Sees $2.5 Billion Liquidation Wave as Risk-Off Sentiment Spreads
By Hannah Lang
NEW YORK, Feb 2 (Reuters) – The cryptocurrency market was rocked by a wave of liquidations exceeding $2.5 billion this week, data from CoinGlass shows, as a sharp downturn in Bitcoin mirrored a broader retreat from riskier investments globally.
The forced closures of both bullish and bearish Bitcoin positions, while significant, remain far below the historic $19 billion liquidation event following former President Donald Trump's 2018 tariff announcement on China. Nevertheless, market observers warn the rapid unwind highlights the crypto sector's entrenched sensitivity to macroeconomic crosscurrents and shifting investor appetite for risk.
"This isn't just crypto volatility in a vacuum," said Adam McCarthy, senior research analyst at Kaiko. "We're seeing a synchronized reassessment of risk across asset classes. Investors are pulling back to recalibrate their strategies in a suddenly more uncertain environment."
Bitcoin, which had scaled a record high above $126,000 just days prior, tumbled to near $104,783 during the October 10-11 period. It failed to recover that ground, trading around $78,396 after a further 6% drop on Saturday—a move exacerbated by typically thin weekend liquidity, according to a Bitfinex analyst note.
The catalyst for the broad risk-off move appears multifaceted. Markets were rattled last week by disappointing earnings from tech giant Microsoft, which cast doubt on the sustainability of heavy AI-related spending. Concurrently, former President Trump's announcement nominating Kevin Warsh as Federal Reserve Chair sent shockwaves through commodity markets.
Warsh, whose potential policy leanings are perceived as hawkish, is expected to advocate for rate cuts alongside a tighter balance-sheet policy. This prospect triggered a historic sell-off in precious metals Friday, with silver posting its worst single-day decline ever and gold suffering its steepest fall since 1983.
"The 'AI trade' optimism met reality, and the Fed outlook took a hard right turn," said Jim Ferraioli, director of crypto research at Charles Schwab. "When gold and tech stocks buckle simultaneously, digital assets rarely escape unscathed. External macro forces are the dominant risk at these valuation levels."
David Morrison, senior market analyst at Trade Nation, summarized the sentiment: "Investors had been looking for reasons to take profits and de-risk. Last week, the market handed them a whole basketful."
Market Voices: Reaction to the Sell-Off
Elara Vance, Portfolio Manager at Horizon Digital Assets: "This is a healthy correction and a stress test for newer institutional frameworks. The $2.5 billion liquidation is orderly compared to past crypto winters. It shows risk management is improving, even if sentiment remains fragile."
Marcus Thorne, Independent Crypto Trader: "It's sheer panic driven by legacy market narratives. Bitcoin's correlation to stocks and Fed gossip is a temporary distortion. The long-term thesis is unchanged. This is a buying opportunity for those who understand the cycles."
Dr. Anya Petrova, Economics Professor at Carlton University: "The violent reaction to a mere Fed *nomination* is telling. It underscores that crypto, for all its promised decentralization, is now a high-beta satellite to traditional finance and its central bank policy dependencies."
Rick Dalton, Host of 'The Hard Fork' Podcast (Emotional/Sharp Critique): "What a joke. The 'digital gold' narrative evaporates the second real gold sneezes? And we're letting Microsoft's cloud earnings dictate Bitcoin's price? This market has no spine. It's a speculative casino masquerading as a financial revolution, utterly hostage to Wall Street's mood swings and political theater."
(Reporting by Hannah Lang in New York; Editing by Michelle Price and Diane Craft)