Why will Bitcoin experience a cliff-like drop in early 2026?

This article does not aim to predict bottoms, call for trades, or create panic, but rather to systematically analyze the true driving mechanisms behind this round of decline before market sentiment completely dominates. It seeks to clarify which changes are structural and which are merely exaggerated appearances.

BTC Price Drop Over 50% from Its High — What Has Happened in the Market?

In terms of results, this is a standard trend-level decline. According to Gate.com market data, Bitcoin entered a clear downtrend channel starting January 14, 2026, continuously falling from $97,941 and reaching a stage low of $59,980 on February 6. Compared to the all-time high of $124,659 on October 6, 2025, BTC has already declined by 51.8%.

More symbolically, Bitcoin’s price broke below the previous cycle’s all-time high of $69,000 during this decline. This level has long been regarded as the “bull-bear dividing line” in market psychology. Once breached, it often causes a substantial impact on long-term narratives. Meanwhile, the crypto market’s fear and greed index once dropped to 9, entering extreme fear territory, hitting a new low since the 2022 bear market.

At first glance, all this seems no different from past bear markets. But the issue is, this decline was not accompanied by clear systemic events. No exchange collapses, no stablecoin de-pegging, and no single macro policy sudden shift. Yet, prices completed declines that usually take months in a very short period, indicating that the forces driving this market are not from isolated shocks but rather a concentrated release of some structural imbalance.

Why Is BTC Experiencing a “Deleveraging Resonance” Drop?

A core phenomenon during this decline is the synchronized deleveraging and resonance effect. When BTC prices start from a very high level, the overall market has significant leverage exposure, including futures contracts, derivatives-linked strategies, multi-strategy hedge funds’ structural positions, etc. Once prices break below key support levels, forced liquidation of leveraged positions causes rapid capital withdrawal. This passive liquidation is not from a single investor but triggered collectively across different strategies. It leads to a quick amplification of the price drop after support is broken, simultaneously increasing market volatility.

During deleveraging, investor risk appetite sharply declines, reducing holdings and deleveraging becoming mainstream behavior. This risk management-driven decline resonance can quickly drain market depth and also provide phased absorption opportunities for on-chain liquidity. This behavior—“forced deleveraging + multi-strategy resonance”—is not accidental but an inevitable result of market participants following risk management rules in high-volatility zones.

Why Does the High Correlation Between BTC and Risk Assets Amplify the Impact During Downturns?

For a long time, some investors viewed Bitcoin as “digital gold” or a hedge asset. But the 2026 rally again proved that, in actual trading structures, BTC behaves more like a high Beta risk asset.

Multiple data points show that before and after this decline, Bitcoin’s correlation with software stocks and growth risk assets was significantly higher than with gold. This means that in multi-asset portfolios, Bitcoin did not serve as a hedge but was categorized as a component to be cut first when risk rises.

Jeff Park, Partner at ProCap Financial, points out that a long-overlooked fact is that increased global liquidity does not necessarily benefit Bitcoin. Despite global liquidity reaching about $170 trillion in 2025 and metals and credit assets generally rising, Bitcoin significantly underperformed. This indicates that what supports Bitcoin’s rise is not “liquidity itself,” but how liquidity enters the market and through which channels it is allocated.

When Bitcoin is mainly held via ETFs, derivatives, and multi-asset strategies, it naturally becomes a risk asset during downturns. This structural correlation makes Bitcoin more susceptible to amplified shocks when risk assets are under pressure.

What Role Did BTC ETFs Play During the Market Decline?

If this decline had occurred before 2018 or 2020, its transmission path might have been entirely different. But by 2026, ETFs have become an indispensable core infrastructure of the Bitcoin market.

On February 6, Bitcoin spot ETF representative product IBIT hit a record high trading volume, with over $10 billion in a single day, and options trading volume also set a new record. Theoretically, such a sharp price decline should have led to massive ETF redemptions, but in reality, the market experienced net subscriptions.

The reason behind this is not investors suddenly turning extremely bullish, but the passive response of market-making mechanisms under high volatility. Large volumes of options and hedging positions triggered short Gamma effects during rapid price declines, forcing traders to hedge risks by selling spot or ETF shares, often through new share creation.

Therefore, this decline mostly occurred within the “paper financial system,” rather than a flight of funds from the on-chain layer. This also explains why, despite significant price drops, there was no systemic run similar to FTX or Terra crises on the blockchain.

Miner Behavior and Macro Interest Rates: Why Is the Bottom Still Under Construction?

In many deep corrections, miner behavior is an important variable for observing the bottom. Miner revenues, inventory sales, and related actions influence on-chain supply and are closely tied to market sentiment. At higher prices, some high-cost miners pause or shut down early in the decline, then recalibrate to reach breakeven points. This process often gradually releases supply pressure.

On the macro level, Federal Reserve interest rate policies and real interest rates continue to exert pressure on long-duration assets. In a high-interest-rate environment, prices can only gradually bottom when the expected returns of risk assets align with capital costs. The staged rebound after a significant correction is a natural process of the market gaining temporary support at low valuations, but it does not mean a structural bottom has fully formed. The bottom-building process involves multiple variables, including capital inflows, miner behavior recovery, institutional demand stabilization, and ongoing macroeconomic conditions.

Has the Four-Year Cycle Really Become Invalid?

Discussions about the “failure of the four-year cycle” have been repeatedly raised during this decline. A more accurate statement might be that the cycle has not disappeared but has been overly simplified and misused.

Historically, each cycle occurred under vastly different macro and market conditions. The existence of ETFs, deep participation of multi-asset funds, and the growth of derivatives markets make it increasingly dangerous to simply apply past rhythms. Jeff Park’s concept of “positively correlated Bitcoin” responds to these changes, suggesting that Bitcoin’s future may not rely on a low-interest-rate environment for growth but will instead reflect value when risk-free rates are re-priced.

After the Decline, Where Do Key Disagreements Between KOLs and Institutions Lie?

Post-decline, market opinions are sharply divided. Some believe the bear market is confirmed, liquidity logic has failed, and risk assets will remain under pressure; others argue that leverage has been quickly cleaned out, ETF funds have not fled, and the long-term fundamentals remain unchanged.

Michael Saylor’s stance exemplifies the latter extreme. He repeatedly emphasizes he will not sell at the bottom and has locked in a significant portion of circulating supply through MicroStrategy. This behavior provides a rare sense of certainty in panic markets but does not guarantee an immediate price reversal.

Market Outlook: Is the Bottom of BTC a Point or a Process?

Overall, the sharp plunge of Bitcoin in early 2026 resembles a re-pricing process driven by structural changes, deleveraging mechanisms, and asset correlations, rather than a single-event collapse.

The bottom will not be a precise number but a period during which multiple forces repeatedly test and gradually clear risks. During this process, focusing on short-term price fluctuations becomes less meaningful; understanding capital flows, institutional behavior, and macro constraints becomes more critical.

Bitcoin remains in evolution, and this decline may be the price paid for that ongoing transformation.