Bitcoin And Gold Plunge As Margin Calls Roil Markets

In a dramatic turn for global markets, the first days of February 2026 have delivered a bruising lesson in the tangled web connecting cryptocurrencies, precious metals, and broader risk assets. Bitcoin, the world’s largest digital currency, tumbled to around $76,000 on February 2, 2026, marking its lowest level in nearly ten months, while gold and silver suffered their steepest single-day losses in decades. The cascade of losses, which erased $250 billion from the total digital asset market over the preceding weekend, has left investors scrambling for answers—and, crucially, for liquidity.

According to Cointelegraph, Bitcoin’s slide from above $88,000 to below $85,000 on January 29 was the spark that ignited a $1.68 billion wave of forced selling across cryptocurrency exchanges. This was the largest single-day wipeout since the FTX collapse, with 93% of the liquidated trades being long positions—investors betting on price increases who were caught off guard by the sudden drop. Hyperliquid, one of the leading exchanges, alone saw $598 million in liquidations, with 94% of that tally coming from leveraged long bets.

But the story didn’t end with crypto. The fallout quickly spread to precious metals. On January 31, gold nose-dived 12%, its sharpest one-day fall since 1983, and silver crashed a staggering 33%, the worst single-day loss on record for the metal. The market chatter, as reported by Investing.com, initially focused on Kevin Warsh’s Federal Reserve nomination and a strengthening dollar as culprits. Yet, a closer look reveals a far more complex—and mechanical—chain reaction at play.

So, what really happened? The answer lies in the arcane world of portfolio margin accounts, where hedge funds and professional traders treat their holdings in crypto, metals, and equities as one big pool of collateral. When Bitcoin tanked, it triggered margin calls that forced these traders to sell whatever assets they could most easily liquidate—often gold and silver futures. As one industry source explained to Investing.com, "A trader holding $5 million in Bitcoin futures, $3 million in gold futures, and $2 million in equity futures needs roughly $400,000 in margin at 5:1 leverage. When Bitcoin crashes and wipes out $200,000 in value, the whole portfolio’s safety buffer evaporates." The forced choice? Sell whatever is liquid, and fast.

Between $500 million and $1 billion in precious metals were dumped onto the market, not because traders lost faith in gold or silver, but simply to cover their Bitcoin debts. This phenomenon, known as contagion, meant that roughly 2-3% of gold’s 12% decline was caused solely by spillover from the crypto crash, with no direct link to the Federal Reserve or the dollar’s strength.

Yet, the regulatory backdrop made matters worse. Between late December 2025 and mid-January 2026, global regulators quietly raised margin requirements for precious metals and stock markets. The CME Group hiked the cash needed to hold silver contracts by 25% and gold by 10%, while the Shanghai Gold Exchange raised gold margins from 16% to 17% and silver from 19% to 20%, spiking cash requirements per lot by 41%. Chinese securities regulators upped stock market margin requirements from 80% to 100% on January 14. The timing couldn’t have been worse: Chinese retail leverage was flushed out just before Western institutional leverage peaked, setting the stage for a perfect storm.

According to CME data cited by Investing.com, these regulatory moves forced between $800 million and $1.2 billion in precious metals selling, independent of any change in the perceived value of gold or silver. When the Warsh news hit, overleveraged positions across three continents unraveled almost simultaneously.

But the mechanical forces didn’t stop there. Goldman Sachs analysts pointed to a "gamma squeeze" in the options market as a major accelerant. Dealers who had sold large amounts of call options at key price levels were forced to buy futures as prices rose, then sell them just as quickly when prices tumbled back through those levels. This feedback loop added another 2-3% to both the rally and the crash. Algorithmic trading bots, programmed to trigger stop-loss orders at preset levels, exacerbated the situation, causing prices to fall in sharp, stair-step drops marked by sudden bursts of trading volume.

The breakdown in market structure was especially evident in the ETF market. The iShares Silver Trust (SLV), which usually trades within half a percent of the value of its underlying silver, saw its premium blow out to 3.3% during the crash. This meant that retail investors trying to sell SLV at $80 were getting a raw deal—losing 3.3% purely due to a lack of market makers willing to step in. Similarly, the spread between buy and sell prices for the SPDR Gold Shares ETF (GLD) widened dramatically, with market makers charging a hidden tax on every trade to protect themselves from the chaos.

The anatomy of the 12% gold price crash, as broken down by Investing.com, tells a revealing story: only 21% of the decline was due to fundamental factors like the Warsh announcement (-2.5%) and dollar strength (-1.5%). The remaining 79% came from mechanical factors: crypto liquidation spillover (-2.0%), margin hikes (-2.5%), gamma squeeze feedback (-2.0%), and algorithmic stop-loss cascades (-1.5%).

As Raoul Pal, founder and CEO of Global Macro Investor, told Cointelegraph, "The big narrative is that BTC and crypto are broken. The cycle is over. The rally in gold essentially sucked all marginal liquidity out of the system that would have flowed into BTC and SaaS. There was not enough liquidity to support all these assets, so the riskiest got hit." Pal dismissed concerns over Warsh’s nomination, adding, "Warsh will cut rates and do nothing else," and remained bullish for 2026: "We remain HUGE bulls for 2026 because we know the Trump/Bessent/Warsh playbook."

Meanwhile, the carnage wasn’t confined to crypto and metals. Asian equity markets tracked Wall Street futures lower, with the MSCI Asia-Pacific index outside Japan falling 2.3% and South Korean shares down 4%. Oil prices slipped nearly 4% after comments from Donald Trump over the weekend suggested Iran was "seriously talking" with Washington, reducing the perceived risk of a U.S. military strike and, in turn, pressuring energy markets.

In the crypto derivatives market, traders rushed to protect themselves. Options open interest in $75,000 Bitcoin puts surged, nearly matching the once-dominant $100,000 calls, as traders sought downside protection rather than fresh upside bets, according to CoinDesk. More than $500 million in leveraged long crypto positions were liquidated over 24 hours in thin weekend trading, highlighting the vulnerability of digital assets to leverage-driven drawdowns.

Through all the noise and volatility, the underlying fundamentals for precious metals and digital assets remain largely intact. Central banks in Poland and China have continued to add to their gold reserves, and industrial demand for silver is steady. As Investing.com noted, "The next rally, when it comes, will be built on a foundation of survivors rather than speculators. That’s not bearish. That’s healthy market evolution."

In the wake of this mechanical flush, markets may now be on firmer footing. The forced exit of overleveraged players and a return to more sustainable technical indicators suggest that, while the pain was real, the long-term story for gold, silver, and Bitcoin may be far from over. For savvy investors, the lesson is clear: understanding the mechanics of leverage and liquidity is just as important as tracking the headlines.