Bitcoin, gold, and silver are plummeting: What's going on? A comprehensive investigation into the causes

When the tide goes out – anatomy of a market earthquake

Financial markets are under stress. What began as a minor correction at the end of January 2026 escalated within days into a historic sell-off that has even seasoned analysts on edge. Bitcoin lost almost 40 percent of its value and fell below the psychologically important $76,000 mark. But this time it wasn't just volatile crypto assets that were hit: even the classic "safe havens" offered no protection. Gold plummeted by almost 20 percent, and silver crashed dramatically, falling over 40 percent from its record highs.

But why do assets that are actually considered a hedge against crises fall precisely when the geopolitical situation in the Middle East escalates? The answer lies in a toxic mix of monetary fear, technological chain reactions, and an abrupt end to the era of cheap money.

The panic was triggered by Donald Trump's nomination of Kevin Warsh as the new Fed chairman – a personnel decision immediately interpreted on Wall Street as a signal for a drastic monetary shutdown. What followed was a domino effect: A massive liquidity shock hit overheated markets, triggering a fatal "gamma squeeze" in options and leading to billions in liquidations in the crypto sector.

In the following analysis, we dissect this "perfect storm" into its individual components. We examine why even physical scarcity couldn't save the price of silver, what role algorithmic traders played, and whether this crash is merely a painful correction or the beginning of a new, colder financial climate.

The stock market crash

In late January and early February 2026, financial markets experienced one of the most severe crashes in alternative asset classes in years. Bitcoin plummeted below $76,000, losing almost 40 percent of its value from its all-time high in November 2025. Gold plunged nearly 20 percent in two trading days, falling from its record high of $5,595 to below $4,400. Silver suffered the most dramatic fall, at one point losing over 40 percent from its record high of $121.65. What was behind this synchronized crash? The answer lies in a combination of several interconnected factors.

Bitcoin, gold and silver: After a record rally, now a crash – what's behind it?

Bitcoin

On February 2, 2026, Bitcoin was trading in the range of €64,000–€65,000, roughly 40 percent below its all-time high from the end of 2025, after its price had fallen from over $120,000 to around $75,000 in just a few weeks. In the days leading up to February 2, it dropped several more percentage points, partly accompanied by billions of dollars in liquidations in the futures market. Compared to its previous surge and the speed of the decline, this can be described as a "crash.".

Gold

Gold was near the $5,600 mark per troy ounce at the end of January, reaching a record high. It then fell briefly below $4,400 before recovering to around $4,700 by February 2nd. This represents a double-digit percentage decline in a very short time following an extreme rally, justifying the journalistic use of the term "crashing," even though the daily loss on February 2nd itself was small.

Silver

Silver's performance has been even more extreme: From a record high of around $120 per troy ounce at the end of January, the price temporarily fell by over 30 to 40 percent, but by February 2nd had already recovered to around $82. In absolute terms, the level is still high, but relative to the peak and the volatility, the movement was clearly crash-like.

The Kevin Warsh nomination as a trigger

The immediate cause of the crash was the nomination of Kevin Warsh as the new head of the US Federal Reserve by President Donald Trump on January 30, 2026. This appointment triggered a shockwave in the markets because it signaled a fundamental change in monetary policy.

Warsh is considered a staunch advocate of a more restrictive monetary policy and has repeatedly called for a reduction in the Fed's balance sheet. While many market participants had bet on continued loose monetary policy under Trump, Warsh's approach represents the exact opposite: less liquidity in the system, a faster balance sheet reduction, and potentially fewer interest rate cuts than expected.

The markets reacted immediately. Within hours of the nomination being announced, sentiment shifted from "risk-on" to "risk-off." Investors began massively reducing their positions in risky assets. The US dollar index rose, putting additional pressure on all dollar-denominated commodities.

The liquidity shock: The end of loose monetary policy

The Warsh nomination merely triggered a more fundamental concern: the end of ultra-loose monetary policy and a looming liquidity shock. Since 2022, central banks worldwide, and the Federal Reserve in particular, have pumped massive amounts of liquidity into the markets. This liquidity has driven Bitcoin, gold, and silver to their all-time highs.

With Warsh at the helm of the Fed, an accelerated balance sheet reduction is now looming. The Fed's balance sheet currently stands at $6.6 trillion, and Warsh has made it clear that he intends to significantly reduce this amount. This means the Fed will buy fewer government bonds and sell more, thereby withdrawing liquidity from the market.

Analysts had already warned before Warsh's nomination that global liquidity could peak in mid-2026 and then decline. A massive refinancing wave in corporate and government bonds is imminent—the so-called "debt maturity wall"—which will temporarily withdraw significant liquidity from the market. Warsh's restrictive stance dramatically exacerbates these concerns.

For Bitcoin, gold, and silver, liquidity is the crucial driver. When less money circulates in the system, demand for non-interest-bearing assets falls. The realization that the era of cheap liquidity might be ending triggered a panic sell-off.

The US Dollar Factor: Strength versus Weakness

Another key factor was the reaction of the US dollar to the Warsh nomination. The dollar strengthened immediately after the announcement, putting massive pressure on gold and silver. A stronger dollar makes all dollar-denominated commodities more expensive for international investors, thus reducing their attractiveness.

Paradoxically, the dollar had experienced its worst month since June 2025 in January 2026, falling by about two percent. This weakness had previously driven up gold and silver. The sudden trend reversal triggered by the Warsh nomination created an additional shock: investors who had bet on continued dollar weakness had to hastily liquidate their positions.

The dollar's dynamics are complex. On the one hand, a more restrictive Fed policy traditionally signals dollar strength. On the other hand, geopolitical tensions and doubts about the economic stability of the US had previously weakened the dollar. The abrupt reversal within 48 hours caught many market participants off guard.

Profit-taking after historic rally

The markets for Bitcoin, gold, and silver had previously experienced unprecedented rallies. Gold had risen by 65 percent in 2025. Silver had recorded its ninth consecutive month of gains, at one point rising by more than 275 percent year-over-year. Bitcoin had reached an all-time high of over $126,000 in November 2025.

After such steep rises, profit-taking is inevitable. Many investors had made substantial gains in recent months and took advantage of the first signs of weakness to cash in. The gold and silver markets were already overheated and vulnerable to a correction.

The situation was particularly tense for silver. The market was in a state of backwardation, where spot prices were higher than futures prices – a clear sign of excessive demand and speculation. Analysts at Goldman Sachs had warned before the rally that a record surge in call options had mechanically amplified the upward momentum. When prices began to fall, this mechanism reversed.

The gamma squeeze in the precious metals market

A technical peculiarity significantly exacerbated the crash in gold and silver prices: the so-called gamma squeeze. This phenomenon occurs when options traders holding short positions are forced to adjust their portfolios by buying or selling futures.

On Friday, January 30, 2026, massive option positions in the SPDR Gold ETF expired at strike prices of $465 and $455. Significant positions were concentrated at $5,300, $5,200, and $5,100 on the CME Group. As prices fell below these levels, traders who had sold these options were forced to sell futures positions in large quantities to balance their portfolios.

This mechanical selling pressure significantly intensified the downward trend. What began as normal profit-taking was accelerated into a full-blown sell-off by the gamma squeeze. The thin liquidity over the weekend—the most dramatic drop occurred over the weekend of January 31st to February 1st—further amplified the movement.

Bitcoin: Massive liquidations and ETF outflows

In Bitcoin's case, another key factor came into play: massive forced liquidations of leveraged positions. On February 1, 2026, a Sunday, cryptocurrency futures worth $2.2 billion were forcibly liquidated – one of the largest liquidation events in the history of the crypto market.

Ethereum led the liquidations with $961 million, followed by Bitcoin with $679 million. Over 335,000 traders lost their accounts, with long positions accounting for roughly 80 to 85 percent of the losses. These figures illustrate the high leverage many positions had and the brutal nature of the sell-off.

In addition, there were massive outflows from Bitcoin ETFs. In just four trading days in mid-January, investors withdrew more than $1.6 billion from US spot Bitcoin ETFs, with over $700 million flowing out on January 21 alone. The week before the crash saw net outflows of $1.33 billion – the largest weekly withdrawal since February 2025.

These ETF outflows signaled a fundamental shift in sentiment among institutional investors. While retail investors were often still hoping for a recovery, professional investors were already withdrawing their capital. This was a clear warning signal that many ignored – until it was too late.

Geopolitical tensions: Iran crisis as a catalyst

An additional strain came from the geopolitical front. At the end of January 2026, tensions between the US and Iran escalated dramatically. President Trump threatened military intervention, while Iran announced countermeasures.

The US massively increased its military presence in the Gulf region, and speculation about an imminent US attack on Iran circulated in the media. On January 31, Iran's Revolutionary Guard announced a live-fire exercise in the Strait of Hormuz. The situation was highly volatile.

Interestingly, Bitcoin, gold, and silver did not react like classic “safe havens.” While gold traditionally benefits from geopolitical uncertainty, the Iran crisis acted as an additional risk factor this time. The reason: The combination of liquidity concerns and geopolitical risks led to a comprehensive “risk-off” mode. Investors sold all risky assets—including Bitcoin and precious metals—to raise liquidity.

Long-term holders are selling: A structural shift in Bitcoin

A long-term trend intensified the pressure on Bitcoin: Long-term holders – investors who have held Bitcoin for years – systematically sold off their holdings. According to K33 Research, the amount of Bitcoin held for at least two years has decreased by 1.6 million since the beginning of 2023 – a value of approximately US$140 billion.

In 2025, nearly $300 billion worth of Bitcoins that had been held for over a year resurfaced on the market. This sell-off wasn't a sudden crash, but rather a gradual downward pressure that weighed on the market. Early Bitcoin investors realized profits at six-figure prices—a rational decision after years of appreciating value.

The problem: The strong demand from Bitcoin ETFs, which had absorbed these sales in 2024 and early 2025, subsided in 2026. When ETF inflows turned into outflows, there was suddenly no buyer to absorb the sales from long-term holders. The balance between supply and demand tipped against the Bitcoin price.

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Technical factors: Head and shoulders pattern in Bitcoin

Technical analysts had already predicted the Bitcoin crash. At the end of January, the price fell below a classic head and shoulders pattern – a bearish chart pattern that often signals a trend reversal. The downward breakout on January 29th set a price target of around $75,130, which was almost perfectly reached at the beginning of February.

These technical movements are not merely self-fulfilling prophecies. They reflect aggregate market psychology and investor positioning. When Bitcoin fell below the $80,000 mark, many market participants' perception shifted from a healthy correction to a risk-off. Institutional investors no longer reacted by "buying the dip," but by reducing their positions.

The area between $77,000 and $79,000 has become a critical stabilization zone. If this zone is not defended, the probability of an accelerated sell-off increases – not necessarily because of new bad news, but because stop-loss orders, margin pressure, and nervousness are all acting simultaneously.

The role of Fed expectations: Fewer interest rate cuts than hoped for

Another important factor was the reassessment of interest rate expectations. In December 2025, the Federal Reserve signaled that it planned to cut interest rates by only 25 basis points in 2026 – significantly less than the markets had hoped.

Markets had previously anticipated two to three interest rate cuts. When the Fed adopted a more hawkish stance in December, followed by the Warsh nomination, investors had to drastically revise their expectations downward. Fewer rate cuts mean higher opportunity costs for non-interest-bearing assets like gold and Bitcoin.

Added to this was the concern about persistent inflation. The Fed's projections indicated inflation of around 2.4 percent by the end of 2026. Should inflation be higher—for example, due to Trump's tariff policies—the Fed might be forced to keep interest rates high for longer or even raise them again. This scenario is poison for gold, silver, and Bitcoin.

Physical scarcity of silver: A paradox

Paradoxically, the silver crash occurred against a backdrop of real physical scarcity. Registered silver holdings on the COMEX had fallen to just 107.7 million ounces, covering only 14 percent of open futures contracts. Commercial traders held net short positions of approximately 231 million ounces – more than twice the available physical stocks.

The silver market had been in backwardation since October 2025, and the Shanghai Gold Exchange was trading physical silver at a 14 percent premium over paper contracts in New York. Refineries were booked solid for months. All signs pointed to a massive short squeeze.

Nevertheless, the price plummeted. How is that possible? The answer lies in the distinction between the physical market and the paper market. The futures market, which determines the price, was dominated by panic selling and technical factors. At the same time, physical demand remained strong, as evidenced by high premiums and long delivery times.

In the long term, physical scarcity should support prices. In the short term, however, the liquidity crisis in the paper markets dominated. This contradiction illustrates the complexity of modern commodity markets, where derivatives are often more important than the underlying physical commodity.

The role of central banks: Gold purchases were not enough

One pillar supporting gold remained even during the crash: demand from central banks. In 2025, central banks worldwide acquired 863 tons of gold – 21 percent less than in 2024, but still significantly above the historical average. The largest buyers were Poland with 102 tons, Kazakhstan with 57 tons, and Brazil with 43 tons.

These central bank purchases, particularly from non-NATO countries, reflect a structural trend toward diversification away from the US dollar. They had driven gold to new record highs in the preceding months. However, even this robust demand could not offset the selling pressure at the end of January.

The reason: Central banks buy gold strategically and for the long term, not tactically in response to short-term price movements. Their purchases are spread out over weeks and months. They were powerless against the massive selling pressure from leveraged speculators and options traders within 48 hours.

In the medium term, however, these central bank purchases should provide solid price support. Analysts expect central banks to continue buying gold into 2026. This could pave the way for a recovery once the acute panic subsides.

Lack of differentiation in the crypto market

A remarkable phenomenon during the crypto crash was the lack of differentiation. Almost all cryptocurrencies crashed simultaneously, regardless of their fundamental differences. The token of the lending protocol Aave lost 26 percent, while Solana lost 4.42 percent.

Analysts attribute this lack of differentiation to the fact that Bitcoin consistently accounts for over 50 percent of the total market value of digital assets, and stablecoins serve as a preferred defensive allocation. When Bitcoin falls, the entire market follows. This prevents capital rotation into other cryptocurrencies.

This behavior shows that the crypto market in 2026 will still be heavily dominated by Bitcoin's dynamics. The hoped-for market maturation with independent valuations of different tokens has not yet occurred. On the contrary, during periods of stress, all crypto assets correlate almost perfectly.

For investors, this means that diversification within the crypto market offers no protection during market crashes. Those who want crypto exposure must accept the overall market risk. Alternative coins do not offer an escape route during panic.

Lack of buyers: The liquidity trap

A fundamental problem exacerbated all the aforementioned factors: there was simply a lack of buyers. After the massive price increases in the preceding months, many potential investors were already fully invested. When prices began to fall, many waited for lower prices before re-entering the market.

Bitcoin's on-chain data showed that buyers remained cautious and large investors – so-called whales – reduced their exposure. The reaction to reaching technical downside targets was weak. This is a dangerous sign: if bargain hunters don't step in, the sell-off could accelerate.

The situation was similar for gold and silver. After the steep rally, many institutional investors were overweight in precious metals. They used the first signs of weakness to reduce their allocation and realize profits. New buyers held back because the uncertainty about future developments was too great.

This liquidity trap is self-reinforcing. The faster prices fall, the more potential buyers wait for even lower prices. The lack of demand further accelerates the sell-off, which in turn makes more investors cautious. Only when prices reach a level perceived as "too cheap to ignore" do buyers return.

Outlook: Temporary correction or trend reversal?

The crucial question for investors now is: Is this a temporary, albeit sharp, correction, or a fundamental trend reversal? The answer is complex and depends on several factors.

Several arguments support a recovery. The structural drivers for gold remain intact: geopolitical uncertainty, central bank purchases, and the long-term trend toward de-dollarization. Physical scarcity persists for silver, while industrial demand from photovoltaics and electric vehicles continues to grow.

In the case of Bitcoin, extreme fear sentiment and oversold technical indicators suggest that the market may be nearing a capitulation. Historically, such extreme points have often presented good entry opportunities for long-term investors. The fundamental thesis – Bitcoin as digital gold and a hedge against inflation – remains unchanged.

However, the changed liquidity conditions argue against a rapid recovery. With Kevin Warsh at the helm of the Fed – if confirmed by the Senate – a more restrictive monetary policy is to be expected. This means structurally less support for non-interest-bearing assets. The era of ultra-loose monetary policy, which drove Bitcoin, gold, and silver to their record highs, may be over.

A likely intermediate scenario is a prolonged consolidation phase with high volatility. Markets need to digest the new monetary policy framework and find a new equilibrium. Short-term recovery rallies are possible, especially if fear subsides and bargain hunters return. However, a sustained new rally would likely require fundamental improvements—such as surprisingly loose Fed policy or an escalation of geopolitical crises.

Lessons for investors: Risk management in volatile times

The synchronized crash of Bitcoin, gold, and silver at the end of January 2026 provides important lessons for investors. First, diversification within an asset class does not protect against systemic shocks. Those who rely on "safe havens" like gold must accept that even these can come under massive pressure during liquidity crises.

Secondly, leverage is dangerous. The massive liquidations in Bitcoin demonstrate how quickly leveraged positions can be wiped out. In highly volatile markets, investors should only use capital they can afford to lose and largely avoid leverage.

Thirdly: Technical analysis and risk management are essential. The head and shoulders pattern in Bitcoin predicted the crash. Investors who had placed stop-loss orders were able to limit their losses. Those who invested without hedging suffered dramatic losses.

Fourth: The difference between physical and paper assets becomes particularly evident during crises. While silver futures plummeted, premiums for physical metal remained high. Investors seeking true diversification should hold a portion of their precious metal allocation in physical form.

Finally, macroeconomic factors—especially liquidity conditions and Fed policy—override all other considerations. Investors must understand the monetary policy environment and adjust their portfolios accordingly. Alternative assets perform well during periods of loose monetary policy. When liquidity dwindles, caution is advised.

A perfect storm with structural causes

The dramatic crash of Bitcoin, gold, and silver in late January and early February 2026 was the result of a perfect storm of converging factors. Kevin Warsh's nomination as Fed chair acted as a trigger, but the underlying causes lay in overheated markets following historic rallies, looming liquidity shortages, massive profit-taking, technical factors such as the gamma squeeze, geopolitical tensions, and fundamental shifts in monetary policy.

Crucially, this was not an isolated event, but rather a symptom of a fundamental regime change. The era of ultra-loose monetary policy since the 2008 financial crisis, further intensified by the COVID-19 pandemic, is drawing to a close. For investors, this means that the conditions that propelled Bitcoin, gold, and silver to their record highs have fundamentally changed.

This doesn't mean these assets have no future. The structural drivers – geopolitical uncertainty, debt crises, inflation concerns, and de-dollarization – remain. But the era in which rising prices were taken for granted is over. Investors must act more selectively, cautiously, and with greater risk awareness.

The crash of January 2026 is seen as a warning signal. It demonstrates how quickly supposedly safe investments can collapse when liquidity dwindles and sentiment shifts. Those who understand this lesson and adjust their risk management accordingly can emerge stronger from this crisis. Those who ignore the warning signals and hope for a quick return to the status quo ante may be disappointed.

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