Bitcoin is undergoing a painful transition from a purely speculative asset to an institutionalized asset. The world's largest cryptocurrency fell to around $73,000 on February 3rd, down more than 40% from its peak of approximately $125,000 in October of last year. This marks the end of the so-called "Tinkerbell Effect" phase—a speculative frenzy sustained solely by belief is now receding.
According to Zhui Feng Trading Desk, a report released on the 4th by Deutsche Bank's Marion Laboure team identified three main drivers of this decline: multiple hawkish signals from the Fed, sustained institutional outflows, and stalled regulatory progress. News of Trump nominating Warsh as the next Fed Chair on January 29th triggered a 5.5% single-day drop in Bitcoin, followed by its largest single-day decline since January 2018 of 7.1% on January 31st. Warsh is known for supporting higher real interest rates and reducing the balance sheet.
The price is approaching key technical levels. According to research by Citi analyst Alex Saunders on the 3rd, Bitcoin has fallen below the average entry price of $81,600 for US spot ETFs and is nearing the pre-US election level of around $70,000. Given the current administration's promise to strengthen US leadership in the digital asset space, the $70,000 level is seen as a significant psychological barrier.
Despite the recent significant drop, Bitcoin is still up about 370% since the beginning of 2023. Deutsche Bank points out that the current adjustment reflects more of a pullback from the speculative gains of the past two years rather than a collapse in fundamentals. However, the crypto market is facing a difficult transition from being "faith-driven" to being "value-anchored".
Sustained Institutional Outflows
US spot Bitcoin ETFs experiencing large-scale redemptions have become a core factor putting pressure on the price. According to Deutsche Bank data, these funds recorded outflows of over $3 billion in January 2026, approximately $2 billion in December 2025, and around $7 billion in November 2025.
Since the market turned in October 2025, institutional investors have been selling billions of dollars in Bitcoin exposure every month. This sustained selling pressure indicates that traditional investors are losing interest, and overall pessimism towards cryptocurrencies is intensifying. The Crypto Fear & Greed Index has fallen back to around 15 points, indicating "Extreme Fear," nearing the low of 10 points seen in November 2025.
Retail participation is declining simultaneously. Deutsche Bank's own dbDatainsights survey shows that cryptocurrency adoption among US consumers is currently about 12%, down from 17% in July 2025, indicating a broad waning of interest.
Institutions reducing their Bitcoin exposure has led to decreased trading volume, which in turn exacerbates the price decline. Thinner liquidity makes the market react more violently to negative news, creating a vicious cycle.
Decoupling from Traditional Assets
Bitcoin's price movement has significantly diverged from gold's, highlighting the breakdown of its "digital gold" narrative. In January 2026, Bitcoin was one of the few major assets to close lower, falling 11% to $78,197. In contrast, gold rose 13%, and the S&P 500 index gained 1.4%. This was Bitcoin's fourth consecutive monthly decline, its longest losing streak since before the pandemic.
The full-year performance is even starker. Gold recorded a 65% return in 2025, while Bitcoin fell 6.5%. This indicates Bitcoin is no longer serving its role as "digital gold." Notably, although gold has recently shown volatility similar to cryptocurrencies, the fundamental drivers supporting gold demand remain strong—central bank purchases, geopolitical risks, and demand for safe-haven assets.
Correlations with the stock market are also changing. Bitcoin's 30-day correlation with both the Nasdaq and the S&P 500 has fallen to around 15%. In contrast, during the market sell-off in October 2025, Bitcoin's correlation with the Nasdaq was about 57% and with the S&P 500 about 52%—typical levels during previous macro-driven adjustments.
Previously, Bitcoin, due to its 24/7 trading and higher beta, often led equity market weakness. But in this recent decline, particularly in January 2026, Bitcoin performed weakly while equities performed well, indicating its risk-asset属性 is being repriced.
Stalled Regulatory Progress
Despite early legislative progress, regulatory uncertainty has weighed on Bitcoin's performance. The bipartisan-supported Clarity for Digital Asset Markets Act (CLARITY Act) has been stalled in Congress for months. This bill aims to establish a framework for digital asset classification and designate the Commodity Futures Trading Commission (CFTC) as the primary regulator for the industry.
The delay stems from disagreements between cryptocurrency and lobbying groups over how to handle stablecoin rewards. The Senate Finance Committee released a draft but it hasn't gained widespread acceptance, and committee votes have been postponed. The Senate Agriculture Committee has also advanced its version of the bill. According to Bloomberg, the White House has urged relevant lobbying groups to reach an agreement by the end of February.
The loss of regulatory momentum has hindered the portfolio integration and liquidity deepening that Bitcoin showed earlier in 2025. According to a previous Deutsche Bank report, early regulatory progress helped lower Bitcoin's volatility in early 2025. Now, Bitcoin's 30-day volatility has rebounded to 40.72, climbing to levels seen in late October, compared to just 26 a week ago.
Citi Research believes the passage of a US market structure bill is a potential catalyst that could change market sentiment and restore inflows. History shows that positive news on regulation is an important factor in boosting investor confidence—ETF inflows increased following both the November 2024 election and the passage of the GENIUS Act in July 2025.
Key Price Levels Approaching
Bitcoin is testing two technical levels closely watched by the market. Citi Research points out that the first is the ETF average entry price of $81,600—calculated as the average based on the largest ETF's daily closing prices. Bitcoin has now fallen below this level, meaning the average holder is at a loss.
The second key level is the pre-US election price of around $70,000. This level holds political and psychological significance. Crypto advocates were enthusiastic donors in the US election, and the current administration has promised to strengthen US leadership in digital assets and established a Bitcoin strategic reserve. This reserve, funded by seized Bitcoin, can only be increased in a "budget-neutral" manner.
There is still room for long liquidations in the futures market. Although multiple rounds of liquidations have occurred since the sharp rise last October, Citi data shows exchanges are still seeing long positions being closed. Demand for leverage in crypto perpetual futures remains subdued.
It is worth noting that "whale" addresses holding over 1000 Bitcoin have recently stopped reducing their holdings. Citi data shows that these long-term holders, who showed concern about Bitcoin's cyclical weakness in November, have recently halted their selling behavior.
Fed Balance Sheet and "Winter" Concerns
Bitcoin is highly sensitive to US bank liquidity, and a potential reduction of the Fed's balance sheet under Warsh's leadership adds an extra layer of concern. Citi Research shows that Bitcoin tends to be very sensitive to changes in US bank reserves, and therefore to changes in the Fed's balance sheet.
The possibility of a "crypto winter" is also heightening market anxiety. Citi's previous research found that while 20% corrections are common in Bitcoin, the current 40% drop from the all-time high is approaching a critical level—beyond which cryptocurrency bear markets have historically been prolonged and deep "winters".
Citi emphasizes this is not its base case scenario, but historical precedents keep investors vigilant. Past "crypto winters" were characterized by long duration and deep drawdowns, distinct from common 20% corrections.
Deutsche Bank's rates strategists believe a reduction in reserve management purchases is possible. Given the sensitivity of Bitcoin and other digital assets to US bank liquidity, this could constitute an additional headwind.
Long-Term Transition from Speculation to Maturity
Looking back, both 2024 and 2025 were extraordinary years for Bitcoin, but they also raised questions about whether the price had detached from fundamentals. Bitcoin started around $16,000 at the beginning of 2023. 2024 saw strong performance, with the price doubling, driven mainly by: ETF approval (January), the Bitcoin halving (April), positive comments from Trump's campaign on the crypto industry (July-August), and Trump's election (November).
In 2025, Bitcoin's value surged again, reaching $101,000 in January. It was another record year, driven by Trump's continued support and statements (like the Bitcoin reserve) and the GENIUS Act targeting stablecoins, reaching a record $125,000 in October.
While crypto-specific events were key, Bitcoin's price rose about 370% between 2023 and 2025. Deutsche Bank believes this indicates a possible decoupling from its fundamental value. A "bubble" forms when asset prices rise持续快速ly, driven by the hope of even higher prices rather than actual fundamental value, and are often followed by a sharp crash.
Deutsche Bank's conclusion is that Bitcoin is experiencing the end of the so-called "Tinkerbell Effect" phase, transitioning from a purely speculative asset to a more realistic positioning. Bitcoin is not a true means of payment or currency because it lacks the essential characteristics of a medium of exchange, unit of account, or store of value. Therefore, it is unlikely to replace established assets like gold or traditional currencies. Bitcoin's volatility is not a flaw but may be an inherent feature.
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