US Crypto Policy Shift Amid Bitcoin Sell-Off and Market Volatility

Bitcoin fell below $66,000 in early February 2026, marking a nearly 50% decline from its October 2025 peak.

• Analysts attribute the selloff to excess leverage, profit-taking by early investors, and a broader market pullback driven by macroeconomic and geopolitical risks.

• U.S. Bitcoin ETFs have experienced outflows and significant losses as prices dropped below average investor purchase levels.

Bitcoin's price movement reflects a broader 'crypto winter' driven by a combination of macroeconomic conditions and investor behavior. Analysts point to factors like reduced institutional demand, leveraged liquidations, and geopolitical uncertainty as key contributors to the decline.

This market correction has also impacted the broader financial sector, with the VIX volatility index rising sharply as investors reacted to Bitcoin's performance and weakness in tech stocks.

The Federal Reserve's hawkish approach to interest rates has exacerbated downward pressure on the market, with Bitcoin being particularly vulnerable due to its correlation with speculative tech stocks.

Analysts like Matt Hougan suggest that crypto winters typically last about 13 months and that the current one may be nearing its end, with potential for recovery if strong economic growth or regulatory clarity emerges.

What Is Driving the Selloff in the Crypto Market?

The current decline in Bitcoin is attributed to a reversal in institutional demand, reduced trading volumes, and a broader sell-off in growth stocks amid rising geopolitical tensions and economic uncertainty.

Large withdrawals from exchanges like Binance have also contributed to tightening liquidity during this volatile period.

Geopolitical factors such as U.S. leadership changes in Venezuela, the Russia-Ukraine war, and U.S. tensions with Iran have heightened investor nervousness.

Additionally, a slower labor market and inflation above the Federal Reserve's target have contributed to a risk-averse environment.

What Role Does U.S. Policy Play in This Crypto Winter?

Despite the selloff, U.S. policy developments have not shielded the market from broader macroeconomic pressures. President Trump's announcement of a U.S. strategic crypto reserve, including Bitcoin and Ethereum, signaled a more favorable stance toward cryptocurrencies.

However, the immediate market response to the announcement included volatility and confusion as Bitcoin was initially omitted before being clarified.

Kevin Warsh's potential appointment as the next Fed Chair could further influence the market. Warsh, known for a hawkish stance on inflation, could tighten liquidity in the short term, but aligning with Trump's growth agenda could benefit crypto markets in the long term.

What Are the Implications for Investors and the Market?

The current downturn underscores the high volatility of crypto compared to traditional assets. Bitcoin, despite a five-year gain of 96%, remains more volatile than the S&P 500's 80% increase over the same period.

Investors are advised to carefully reassess their crypto exposure, with financial advisors suggesting limiting crypto holdings to a small portion of a diversified portfolio.

Strategies such as tax-loss harvesting and portfolio rebalancing are also being recommended to manage losses.

The broader financial market is also feeling the effects of the crypto selloff, with the VIX volatility index rising more than 25% over five days as Bitcoin's decline contributed to broader unease.

The interconnected nature of global markets means that even a crypto-focused downturn has ripple effects across other asset classes.

Analysts warn that volatility will likely persist until macroeconomic and geopolitical uncertainties are resolved.