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Bitcoin began 2026 with the kind of quiet confidence that comes after a strong year. It opened January near $87,700, still riding the tailwinds of 2025’s institutional adoption, ETF inflows, and a general sense that the post-halving cycle had real legs. By mid-February, that optimism had evaporated. The price had fallen to the $68,000–$68,700 zone, down 22–24% for the year so far. Unless March delivers a dramatic turnaround, 2026 will record Bitcoin’s weakest first quarter since the brutal bear market of 2018, when it lost nearly 50% in the opening three months.
This wasn’t a sudden crash triggered by a single scandal or black-swan event. It was a slow, grinding decline built on layers of real-world pressure that fed on one another until the market simply ran out of buyers willing to stand in the way.The most visible catalyst was the partial U.S. government shutdown that began on January 31, 2026, after Congress failed to pass a funding bill. For several days federal operations were paralyzed. The SEC and CFTC could not process routine filings or approvals. Economic data releases—including the critical January jobs report, were delayed, creating what traders called a “data vacuum.”
Without fresh numbers to guide expectations, uncertainty filled the gap. Prediction markets had priced in a high probability of disruption, and when it materialized, risk appetite collapsed. Bitcoin slid toward $83,000 as the shutdown took hold, then kept sliding as the political stalemate dragged on. Even after a temporary funding deal was signed in early February, the damage was done: the episode reminded everyone how quickly Washington dysfunction can ripple into every corner of the financial world, including assets that once prided themselves on being independent of it.

Layered on top of the shutdown was the nomination of Kevin Warsh as the next Federal Reserve Chair. Announced in late January, the move sent a clear signal to markets: the era of ultra-loose policy might be ending sooner than hoped. Warsh, a former Fed governor known for favoring a smaller balance sheet and greater caution on liquidity, was interpreted as a more hawkish choice than many in the crypto community had anticipated. The reaction was immediate and brutal. Bitcoin, already under pressure, dropped sharply alongside gold and silver (the latter suffering its worst single-day loss since 1980).
The message was simple: if the Fed is likely to keep rates higher for longer and shrink its footprint, the flood of cheap money that had supported risk assets could slow to a trickle. Even though Warsh has spoken positively about Bitcoin in the past, calling it “your new gold” for anyone under 40, his policy leanings spooked traders far more than his personal views reassured them.At the same time, the market was undergoing a painful internal adjustment. Spot Bitcoin ETFs, which had been a steady source of demand throughout 2025, flipped to consistent net outflows in the new year, totaling several billion dollars in just weeks.
This removed a major structural bid at the worst possible moment. Meanwhile, leveraged positions in futures markets were being unwound aggressively. Open interest fell roughly 20% in a short period, and liquidations topped $1–2 billion in several 24-hour windows. It wasn’t chaotic panic selling; it was orderly but relentless deleveraging. Lower prices triggered margin calls, which forced more selling, which thinned liquidity and made the next drop even sharper. On-chain data showed pockets of long-term holders finally taking profits or cutting losses, classic signs that the market was flushing out the weakest hands after a long run-up.

These forces did not operate in isolation. Broader macro caution was already in the air: brief spikes in dollar strength, lingering inflation worries, and a general rotation away from high-beta assets all weighed on crypto. When traditional markets wobbled, Bitcoin, still viewed by many as a leveraged play on risk appetite, felt the impact more acutely.

The result is a first quarter that feels heavier than the raw percentage drop suggests. Investors who entered 2026 expecting continuation of the 2025 rally have instead been reminded that Bitcoin, even in bull cycles, can deliver 20–30% drawdowns without warning. The pain has been compounded by the narrative shift: what began as “healthy consolidation” quickly morphed into questions about whether the bull market itself was intact.
Yet history offers perspective. Severe early-year weakness is not new, and it has not always dictated the full-year outcome. The -49.7% Q1 of 2018 led into a long bear market, but milder negative starts, like -10.8% in 2020 or -11.8% in 2025—were followed by strong recoveries once the dust settled. The current drawdown feels closer to those corrective phases than to a structural breakdown. Leverage has been meaningfully reduced, ETF selling appears to be slowing in spots, and the core long-term drivers, spot ETFs, corporate and sovereign adoption, clearer U.S. regulatory framing, and Bitcoin’s fixed supply, remain in place.

The first quarter of 2026 has been a harsh reminder that politics, policy expectations, and market mechanics can still dominate even the strongest fundamental stories. The U.S. government shutdown created immediate uncertainty and a data blackout. The Warsh nomination shifted the liquidity narrative in a less favorable direction. ETF outflows and deleveraging turned that uncertainty into real selling pressure. Together they produced one of Bitcoin’s roughest starts on record.
Whether this proves to be the low point or merely a pause before deeper testing depends on how quickly the macro backdrop stabilizes and whether support around $65,000–$68,000 holds. For now, the market is doing what it has always done in difficult periods: it is repricing risk, clearing excess leverage, and waiting to see which narrative regains control. The pain is real, the lessons are old, and the cycle, bruised but still intact, continues.

$BTC $ETH #MarketRebound