Bitcoin falls below $80,000, continuing decline as liquidity worries mount

Jan 31 (Reuters) - Bitcoin, the world's largest cryptocurrency by market value, was down by 6.53% at $78,719.63 at 12:48 p.m. ET (1748 GMT) on Saturday, continuing its decline from the previous session.

On Friday, ?bitcoin fell to as low as $81,104, the lowest since November 21, while the U.S. dollar ?gained after former Federal Reserve Governor Kevin Warsh was selected as ?the next Fed chair. Some investors and traders ?are concerned he ?might tighten up on cash in the financial system.

Warsh has called for regime change ?at the central bank and wants, among ?other things, a smaller Fed balance sheet.

Bitcoin ?and other cryptocurrencies have been regarded as beneficiaries of a large balance ?sheet, ?having tended to rally while the ?Fed ?greased money markets with liquidity - a support for ?speculative ?assets.

Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin, said the ?Fed's "bloated balance sheet combined with heavy-handed bank regulation" had kept liquidity trapped on Wall Street instead of flowing to Main Street, helping fuel bubbles in assets such as bonds, crypto, metals and meme stocks.

Ether also fell 11.76% to $2,387.77 on Saturday afternoon. Cryptocurrencies have been ?struggling ?for direction since tumbling last year, having been left behind by big rallies in gold and stocks.

"Sometimes these price adjustments ?feed on themselves," Jacobsen said, adding that Friday's abrupt drop had reminded people of the risks. He said it was "possible, if not likely, that we see more selling over the next few days."

Cryptos are having a rough time in what was once hoped to be a golden era of flows ?and friendly regulation under President Donald Trump. Market-leading bitcoin has lost a third of its value since striking record highs in October last year.

(Reporting by Anusha Shah ?in Bengaluru and Megan Davies; editing by Diane Craft and Nia Williams)