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Bitcoin Takes a Big Hit - 12 Warning Signs Behind Crypto’s Growing Crisis

Bitcoin has recently taken a dive, showing that it might not be for everyone.

By Miranda Marquit

Edited by Sara Albertelli

Updated Feb. 6, 2026

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Before you get swept up in the idea of wanting to build wealth with Bitcoin, it's worth slowing down and checking in with your own financial reality. Just because something is getting a lot of buzz, or feels like a once-in-a-lifetime opportunity, doesn't mean it's the right move for you right now.

That caution feels especially relevant as Bitcoin has been on a rough ride lately, sliding to $60,062 yesterday and rattling investors across the crypto space. The sharp drop marked one of Bitcoin's worst trading sessions on record, bringing it to its lowest value since 2024, pulling down other major tokens like Ether and Solana and shaking confidence in the market as a whole, even as prices briefly bounced back by over 9% today.

These swings have many investors asking hard questions about what Bitcoin is really worth and what role it plays. With institutional interest cooling, this week has shown that crypto can be unpredictable. That's something, along with these other reasons, worth thinking about before jumping in.

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It's historically volatile

Cryptocurrency prices are historically volatile, rising and falling quickly. All you have to do is take a look at a price chart for any cryptocurrency. Wide swings from day to day are common, even for well-known currencies such as Bitcoin.

Other cryptocurrencies also experience wide swings, as shown by Ether and Solana's fall this week.

If you're looking for something with relatively stable pricing, crypto isn't there yet.

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Valuing cryptocurrencies can be difficult

When valuing stocks, you can look at various characteristics of a company, including its management, balance sheet, and revenues. You can form an opinion but that might not equal value.

Other assets, such as commodities and real estate, can also be easier to value. Some of these assets are tangible and can be touched.

Crypto, on the other hand, is more difficult to value. You can't touch cryptocurrencies, and they don't have a long history like many other asset classes do. Trying to come up with a value that makes sense can be difficult, so comparing it to other asset classes can be tricky.

It's bad for the environment

The rise in interest in cryptocurrencies has prompted many people to try mining various coins using computer equipment.

However, Bitcoin is bad for the environment because the process uses a large amount of electricity, and many of the power plants supplying that power are run using fossil fuels.

If you're interested in making environmentally friendly investments, be aware that some cryptos aren't as efficient as others. Carefully consider which coins you support with your dollars if you want to avoid those that rely heavily on fossil fuels.

Taxes are really complicated

Filing your taxes is likely complicated enough without figuring out how to pay taxes on your cryptocurrency earnings.

In the end, how you're taxed depends, in part, on how you receive your crypto. If you use fiat currency to buy your coins and then hold them, they are often treated as capital assets, and you have to determine whether you owe short-term or long-term capital gains taxes after you sell.

However, if you receive crypto as payment for services, then it's considered income and could be taxed as ordinary income, based on the coin's value on the day you received it.

The crypto market is currently in crisis

The numbers tell that story clearly: Bitcoin has fallen about 28% over the past year, while "safe-haven" assets like gold have climbed roughly 72% in the same time. For many investors, that gap reinforces why gold is still seen as a reliable hedge when economic uncertainty rises.

Big investors are also pulling money out of Bitcoin as they prepare for the possibility of further losses, according to a recent note from Deutsche Bank. That wave of institutional selling is draining liquidity from the market, making the token more vulnerable to sharp moves.

Fiat currencies could work on blockchain

While many enthusiasts point to the blockchain as a public ledger and a secure way to send payments, the reality is there's nothing stopping fiat currencies from working on the blockchain too. Fiat currencies are currencies issued by a government or its central bank, such as the U.S. dollar.

Some U.S. central bank officials have even suggested the creation of a digital dollar. That means putting the U.S. currency on the blockchain and making it possible to execute transactions using a dollar token.

In the end, cryptocurrencies aren't especially unique in terms of paying for items. Fiat currencies may follow suit.

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Cryptocurrencies aren't truly mainstream yet

Despite the fervor surrounding cryptos, they aren't truly mainstream yet. Many reports show that a relatively small amount of people control most of the Bitcoin wealth.

There's a potential for fraud and theft

While some cryptocurrencies are legitimate, there is also the potential for fraud and theft. On top of that, because cryptos are so trendy, there are investment schemes surrounding these currencies.

It's bad enough that the Securities and Exchange Commission (SEC) regularly issues investor alerts about fraud surrounding cryptos. One famous example of a crypto Ponzi scheme was the Bitconnect craze that ended with over $2 billion in fraud back in 2017-2018.

Additionally, if someone does manage to get into your crypto wallet, they could steal your coins, and you have no recourse, whether they manage to get into an online wallet or some other wallet.

There's a lack of regulation

So far, there isn't much regulation of the crypto market.

There are a number of cryptocurrencies and crypto exchanges, and pretty much anyone can make a coin offering without going through the kind of vetting that a publicly listed company would be subject to.

While the regulatory environment could change, so far, cryptos aren't protected by SIPC insurance. So if the company managing your crypto holdings fails, you might not have recourse to get your money back.

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You don't have a robust portfolio yet

You might not have a robust investment portfolio yet, so it might not make sense to buy into something such as crypto, which is such a new asset class.

When creating an asset allocation for your portfolio, you might want to limit your alternative assets to 10% to 20% of the total portfolio value.

Others might be more comfortable allocating a lower percentage to alternatives. For example, I like to keep my alternative investments to about 8% to 10% of my portfolio. That encompasses all of my alternatives, including crypto.

If you haven't built a solid core portfolio of more traditional assets, it might make sense to bulk up a little bit before adding riskier alternatives such as cryptocurrencies.

You're putting too much of your portfolio into crypto

If you want to add another cryptocurrency to your portfolio, take a step back and consider how much of your portfolio is already invested in crypto assets.

For example, about 5% of my portfolio is in various cryptocurrencies. I am unlikely to invest in another coin unless I sell something first in order to maintain an asset allocation I'm comfortable with.

When too much of your portfolio is in crypto assets, you run the risk of losing more than you can afford to if the bubble bursts or price volatility catches up with you. So, take a look at your portfolio closely to avoid money mistakes.

The market is crowded with made-up currencies

While some cryptocurrencies, such as Bitcoin and Ether, have made their way into widespread consciousness, there are still plenty of other made-up currencies.

This makes it hard to tell which currency will catch on. One of the surprising facts about cryptocurrency is that some of them, such as Dogecoin, were started as jokes but then saw their price skyrocket before dropping lower.

Trying to work out which crypto assets will take off and have staying power can be difficult, and you could lose money before it's over.

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Bottom line

Investing in cryptocurrencies can be an exciting way to boost your portfolio and make some money.

However, before you risk any of your hard-earned income on crypto, do your research and ensure that you have the tolerance for this type of investing.

Disclosure: The author has positions in Bitcoin, Ether, and Dogecoin.

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