The Perfect Storm: Why Bitcoin Just Broke $70,000 and Where the Bottom Lies

By Lou Wallace

February 5, 2026

The “Bitcoin Boomer Adoption” trade appears to be officially dead—at least for now.

For the first time since November 2024, Bitcoin has sliced through the psychological floor of $70,000, trading as low as $66,500 in early Thursday sessions. The collapse marks a staggering 45% retreat from the all-time highs of roughly $126,000 seen just four months ago in October 2025.

While volatility is nothing new to the crypto markets, the speed and severity of this week’s downturn—erasing over $500 billion in total market value—has left institutional and retail investors alike asking the same question: Why now?

The answer is a confluence of Washington gridlock, monetary hawkishness, and a dangerous technical “air pocket.” Here are the three primary issues driving the current crash.

1. The “Warsh Effect” on the Fed

The immediate catalyst for this week’s sell-off was President Donald Trump’s nomination of Kevin Warsh to succeed Jerome Powell as Federal Reserve Chair.

While the crypto sector largely celebrated Trump’s election win in late 2024, the reality of his monetary policy picks is proving less appetizing. Warsh is a known hawk who has long criticized the size of the Federal Reserve’s balance sheet. His nomination signals a potentially restrictive monetary regime—one focused on “real interest rates” and liquidity tightening rather than the loose-money policies that historically fuel speculative assets like Bitcoin.

Markets hate uncertainty, but they hate liquidity drains even more. The prospect of a shrinking Fed balance sheet has triggered a broad “risk-off” rotation, punishing not just crypto, but also tech stocks and even traditional havens like gold and silver.

2. The Government Shutdown Paralysis

Compounding the macro fear is the partial U.S. government shutdown that began on January 31, 2026.

With Congress failing to pass essential funding bills, agencies like the SEC and CFTC have been forced to suspend routine operations. For the crypto industry, this is a double-edged sword. While some might cheer a pause in enforcement actions, the shutdown has effectively frozen the regulatory progress the industry was banking on for 2026.

Key frameworks for stablecoins and the much-anticipated Clarity Act—which aimed to define market structures for digital assets—are now stalled in legislative limbo. Approvals for new crypto-financial products are stuck in a bureaucratic bottleneck, draining the optimism that fueled the institutional inflows of 2025.

3. The $70K “Air Pocket”

Beyond politics, market structure is playing a brutal role. Analysts at Bitwise and LMAX have pointed to a dangerous “air pocket” in Bitcoin’s price history between $70,000 and $80,000.

Because Bitcoin surged through this range so quickly during the frantic rally of late 2025, very little transaction volume occurred at these levels. In trading terms, this means there is no “cushion” of historical buyers to support the price. Once the $74,000 support level gave way earlier this week, there was little friction to stop the slide until the mid-$60ks.

What Comes Next?

The market is now staring at a critical line in the sand: $68,000.

This price point represents the 200-week moving average, a long-term trendline that has historically acted as the ultimate floor during bear markets. If Bitcoin can stabilize here, the “smart money” may step in to defend the trend.

However, if the shutdown drags on and the $68,000 support fails, technical models suggest the next major demand zone isn’t until $52,000—a full reset that would test the resolve of even the most hardened “diamond hand” investors.

Lou Wallace is the Founder and CEO of Digital Media Online. This article is for informational purposes only and does not constitute financial advice.