Bitcoin Falls as Deleveraging Hits Crypto Markets

Bitcoin slid hard this week, wiping out the gains that followed Donald Trump’s 2024 election win and underscoring a shift in crypto’s current regime: liquidity and leverage are driving price more than ideology or “adoption” headlines. Reuters reported Bitcoin falling below $61,000 and highlighted a meaningful deterioration in market plumbing—average 1% market depth (a measure of how much buy/sell interest exists near the current price) dropping from about $8 million in 2025 to roughly $5 million. The immediate story is a classic cause–effect–impact chain: a macro-policy shock and risk-off sentiment triggered forced selling; thinner liquidity amplified the move; and the longer-run implication is that Bitcoin is trading more like a high-beta macro asset than a standalone “digital gold.”

What Set It Off: The Macro Shock Meets a Crowded Position

The “cause” begins with the market’s reassessment of U.S. liquidity. Reuters tied part of the crypto drawdown to investor unease about tech valuations and uncertainty around the Federal Reserve’s path—made more acute after Trump nominated Kevin Warsh as Fed chair, which investors interpreted as a potential push toward balance-sheet shrinkage and tighter financial conditions.

That matters because crypto is structurally sensitive to global dollar liquidity. When traders start pricing a less accommodative Fed regime, the repricing often hits the most duration-like, sentiment-driven assets first—growth equities, high-yield credit, and, increasingly, large-cap crypto. Bitcoin doesn’t need a crypto-specific scandal for sellers to appear; it only needs the market to conclude that the marginal bid will be weaker.

A second accelerant is positioning. After months of “dip-buying culture,” leverage tends to accumulate quietly—until a sharp break forces positions to unwind. Reuters reported $2.56 billion of Bitcoin liquidations over recent days (via CoinGlass data), a sign that the move wasn’t purely discretionary selling; it involved forced exits.

A fictitious—but representative—desk comment captures the dynamic:

“When the market starts debating balance-sheet policy again, crypto becomes a liquidity thermometer,” said Maya Chen, head of digital-asset strategy at Northbridge Markets. “Once liquidation pressure begins, price can fall faster than fundamentals change—because the trade is being resized, not rethought.”

How the Market Traded It: Liquidity Thins, Volatility Rules

The “effect” showed up in microstructure first: thinner books, more slippage, and faster cascades. Reuters’ market-depth statistic is telling—$5 million of average 1% depth is not “no liquidity,” but it’s a meaningful reduction versus $8 million in 2025, and that difference is often what separates an orderly pullback from a disorderly air pocket.

MarketWatch described Bitcoin’s violent week as a combination of capitulation and a relief bounce: a dip as low as roughly $60,057, followed by a sharp rebound above $71,000, while still marking the worst week since 2022 and remaining far below the October 2025 high near $126,272. This is exactly how deleveraging phases often look:

• Phase 1 (Break): Key levels fail; liquidations begin; market depth worsens.
• Phase 2 (Cascade): Forced sellers dominate; correlated risk assets fall together.
• Phase 3 (Relief): Shorts cover and dip buyers step in—but volatility stays elevated.

Crucially, the market is signaling that Bitcoin’s short-term price discovery is less about long-term narratives and more about risk limits, collateral haircuts, and cross-asset correlations. Reuters noted analysts increasingly see Bitcoin reacting to broader financial movements and equities—tightening its link to traditional markets.

The Bigger Impact: From “Crypto Story” to Balance-Sheet Reality

The “impact” is broader than one ugly week. If liquidity remains constrained, Bitcoin’s upside can still exist—but it may come with structurally fatter tails in both directions.

One underappreciated channel is the policy optics around official holdings. Barron’s reported that the value of the U.S. government’s estimated ~200,000 BTC has dropped materially from prior peaks—framing the political cost of volatility at the exact moment regulators and policymakers are trying to shape crypto’s role in the financial system. Whether or not you agree with the framing, it reinforces a practical reality: crypto has graduated into macro politics, and macro politics can feedback into risk appetite.

Another channel is corporate behavior. As Bitcoin becomes more correlated with risk assets, treasury-style “buy-and-hold” narratives face tougher mark-to-market scrutiny during drawdowns. That can reduce the marginal corporate bid when volatility spikes—again, a liquidity story.

Where Traders and Investors Look Next

If this selloff is a liquidity-led reset, three signposts matter more than social sentiment:

1. Market depth and spreads: Watch whether depth rebuilds (implying market makers are comfortable again) or remains thin (implying fragility).
2. Liquidation pressure: A slowdown in forced selling typically precedes stabilization; renewed liquidation waves often signal another leg.
3. Macro catalysts: Fed communication and broader equity volatility are now first-order inputs to Bitcoin’s near-term path.

Bottom line: Bitcoin’s post-election gains may be gone, but the more important message is structural—until liquidity visibly improves, crypto will likely trade as a high-volatility macro asset where leverage management matters as much as conviction.