Bitcoin market update: Navigating the recent correction

Cryptocurrency assets have faced a period of severe volatility, with Bitcoin losing approximately a quarter of its value since the beginning of the year. Against this backdrop, our Digital Assets Team discuss the factors behind the recent movements in the crypto markets and consider what could come next.

Key points

• The current correction remains broadly within the historical range of drawdowns observed during prior Bitcoin bear markets.
• Market volatility is likely to remain elevated in the near-term. Any sustained recovery will likely require time, renewed demand and meaningful absorption of existing supply.
• The fundamental thesis for Bitcoin remains unchanged: a non-sovereign asset with 24/7 global liquidity, neutrality and independence from centralised control.

What happened?

Crypto assets have been caught in a broader risk-off environment amidst deteriorating market conditions and ongoing geopolitical tensions. Bitcoin is down more than 25% year-to-date, with a peak-to-trough drawdown approaching 50% since October 2025. The wider crypto market has also faced a challenging backdrop, characterised by a contraction in total market capitalisation to around US$2.3 trillion, elevated volatility and a diminished risk appetite among investors.

Importantly, this adjustment has not been isolated to crypto markets. The past several days have been difficult across global risk assets and commodities. Some equity benchmarks are now in negative territory year-to-date, while commodities such as gold and silver have declined by approximately 10% and 38% respectively from their all-time highs. These moves reflect a combination of macroeconomic repricing and episodes of forced deleveraging across markets.

While the current correction in Bitcoin is severe in absolute terms, it remains broadly within the historical range of drawdowns observed during prior Bitcoin bear markets. From a longer-term perspective, such volatility has historically been a feature of Bitcoin's market cycles, rather than an anomaly.

Bitcoin's maximum drawdown over the past cycles

Past performance is not a guide to the future.
Source: Bloomberg, Fidelity International, as of 5 February 2026.

Market dynamics and key trends to monitor

Spot market activity in Bitcoin remains structurally weak, reinforcing a near-term demand vacuum. Sell-side flows are currently not being met with sufficient absorption, contributing to persistent price pressure.

On-chain data indicates that large holders have contributed to net distribution since the start of the year, while demand from large allocations initiated in 2025 has diminished materially. This dynamic is reflected in sustained Bitcoin ETF outflows, totalling approximately US$1.6 billion year-to-date, alongside fading net inflows from Treasury-linked companies.

As a group, Bitcoin spot ETF investors are now in a loss-making position, with Bitcoin prices trading below the estimated US$82,000 average cost basis. Public companies acquiring Bitcoin as part of their balance sheets, including Digital Asset Treasuries (DATs), had been a significant source of demand since 2025, with aggregate holdings nearly doubling to over one million BTC, representing close to 5% of total supply. However, the majority of DATs are now underwater, which may introduce additional downside pressure should balance sheet constraints lead to further selling.

With spot trading volumes remaining low and overall market liquidity still thin, prices remain vulnerable to further downside moves. From a technical perspective, the 200-week moving average − at which historically Bitcoin tended to bottom during major market cycles − currently sits at around US$58,000 and remains an important level to monitor.

Outlook

Market volatility is likely to remain elevated in the near-term. Any sustained recovery will likely require time, renewed demand, and meaningful absorption of existing supply. That said, the market structure in this cycle has become increasingly institutionalised. Over time, we continue to observe a structural decline in Bitcoin's volatility, both on a standalone basis and relative to traditional safe-haven assets, such as gold.

Annualised volatility of Bitcoin and traditional asset classes

Past performance is not a guide to the future.
Source: Bloomberg, Fidelity International, as of 6 February 2026.

Beyond near-term price movements, the fundamental thesis for Bitcoin remains unchanged. It continues to represent a non-sovereign asset with 24/7 global liquidity, neutrality and independence from centralised control. Its scarcity-driven design offers an alternative store-of-value framework that is distinct from both fiat currencies and traditional real assets.

Regulatory developments also continue to shape the evolving market landscape. This week, the Commission de Surveillance du Secteur Financier (CSSF) released an update on crypto assets, clarifying that UCITS (Undertakings for Collective Investment in Transferable Securities) products may, under specific conditions set out in its FAQ, invest indirectly in crypto assets for up to 10% of net asset value.

This represents a meaningful step forward and carries important implications for the structural adoption of crypto assets within regulated fund frameworks over the medium to long-term.

Important information

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Digital assets are speculative and highly volatile, can become illiquid at any time, and are for investors with high-risk tolerance. Investors in digital assets could lose the entire value of their investment.

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