Why did Crypto Assets experience a big dump today? Bitcoin ETF saw an outflow of 870 million USD in a single day.

Due to the re-evaluation of the Federal Reserve's interest rate cut expectations and the fading rebound of the US stock market, the liquidation in the crypto assets market continues, with Bitcoin prices further falling below the 100,000 dollar mark. The Bitcoin exchange-traded fund (ETF) recorded a net outflow of about 870 million dollars last Thursday, marking the second largest single-day redemption scale since the launch of such funds. Data from CoinGlass shows that over the past 24 hours, leveraged bets worth over 1 billion dollars in crypto assets have been closed.

Bitcoin falls below 100,000 USD, ETF funds face historical large withdrawals

(Source: Bloomberg)

Affected by the risk aversion sentiment sweeping the market, investors withdrew nearly $900 million from Bitcoin funds, and the price of Bitcoin further fell below the $100,000 mark. The largest digital asset plummeted as much as 2.8% during trading on Friday, dropping below $96,000, and subsequently regained some ground, but it was still over 20% lower than the record high set in early October.

Bitcoin exchange-traded funds (ETFs) recorded a net outflow of approximately $870 million on Thursday, marking the second-largest single-day redemption scale since the launch of such funds. This figure is only second to the highest single-day outflow record in history, indicating that institutional investors are massively withdrawing from the crypto market. Since the launch of the US spot Bitcoin ETF in January 2024, these products have been seen as a major channel for institutional funds entering the crypto market. A single-day outflow of $870 million signifies that institutional confidence is collapsing.

The outflow of funds from ETFs is behind a broader market panic. Earlier this week, buoyed by the positive news of the end of the U.S. government shutdown, U.S. stocks briefly rebounded but quickly faded. Due to delays in the release of key economic data, traders began to question whether the Federal Reserve (FED) had justification for a short-term rate cut—this reassessment is putting new pressure on the riskier areas of the market. As the most volatile category in the spectrum of risk assets, crypto assets are the first to be impacted.

Max Gokhman, the Deputy Chief Investment Officer at Franklin Templeton Investment Solutions, stated: “The current sell-off is completely correlated with other risk assets, but given the higher volatility of crypto, its decline is more pronounced. As institutions become more deeply involved in the crypto market and investment targets are no longer limited to Bitcoin and Ethereum, the correlation between crypto and macro risks will continue to remain high.”

This perspective reveals the structural issues currently facing the crypto assets market. Although the launch of the Bitcoin ETF is seen as a milestone for institutional adoption, when the macroeconomic environment shifts, institutional funds become the quickest to exit. Retail investors often hold based on faith, while institutional investors strictly adhere to risk management protocols, and once risk indicators trigger warning thresholds, they immediately close positions and exit.

Liquidation wave continues, 1 billion USD in leveraged liquidations in 24 hours

CoinGlass data shows that the wave of liquidations continues, with over $1 billion worth of crypto assets leveraged bets being closed in the past 24 hours. Although this figure is lower than the $19 billion liquidation scale on October 10, it remains at a historical high, indicating that the market has not yet fully stabilized. Liquidation refers to the forced closing of positions by the exchange to avoid larger losses when a trader's margin is insufficient to maintain a leveraged position.

The chain reaction of liquidations is an important driver of the sharp decline in the cryptocurrency market. When prices begin to fall, the highly leveraged long positions are the first to be liquidated, and these forced sell-offs further depress prices, triggering the next batch of liquidations. This positive feedback loop is particularly severe in the crypto market, as many exchanges allow leverage of up to 100 times, meaning a mere 1% drop in price is enough to liquidate positions with 100 times leverage.

The $19 billion liquidation event on October 10 is the largest of the year, causing the total market value of all Crypto Assets to evaporate by over $1 trillion. This wave of liquidations was triggered by Trump’s announcement of a 100% tariff on Chinese imports, which sparked a sell-off of global risk assets. The Crypto Assets market, due to its 24/7 trading nature and high leverage rates, became the most severely affected asset class.

Market liquidity has also significantly shrunk. Kaiko data shows that market depth (the ability of the market to absorb large orders without significant price fluctuations) has decreased by about 30% from this year's peak. The shrinkage of liquidity means that sell orders of the same size will cause greater price fluctuations, further exacerbating market instability. This liquidity crisis is particularly evident during the weekend, as many market makers reduce capital allocation over the weekend.

Weak technical support at 90,000 USD, institutions warn of greater declines

SignalPlus partner Augustine Fan stated: “Since President Trump's inauguration, Bitcoin has now turned to a fall, and the total market value of the crypto assets has also retraced this year's gains. From the current level to $90,000, (Bitcoin) has limited technical support, and market sentiment may remain subdued until further positive news emerges.”

This warning reveals the current technical vulnerability of Bitcoin. Technical support refers to a price level where there has historically been a large amount of buying activity, creating resistance against price declines. The weak technical support above $90,000 means that there is a lack of strong buying defense between the current price of about $96,000 and $90,000. If it falls below $90,000, the next strong support level may have to go down to $80,000 or even lower.

From a technical analysis perspective, Bitcoin has broken below the important psychological level of $100,000. This level has provided support multiple times over the past few months and has now turned into a resistance level. Bitcoin has fallen over 20% from the record high set in early October, technically entering a bear market territory (a drop of over 20% from the peak). The moving average system has also started to deteriorate, with the short-term moving average crossing down below the long-term moving average, forming a death cross.

Three Major Technical Risks Faced by Bitcoin

100,000 USD resistance is strong: Multiple failed attempts to recover will strengthen the resistance and attract more short sellers.

Weak support at 90,000 USD: A drop below this level may accelerate the decline to 80,000 USD or even 75,000 USD.

Liquidity Continues to Shrink: A 30% decrease in market depth has led to increased price volatility.

Nick Ruck of LVRG Research stated that in the options market, traders are increasingly betting on volatility, with rising demand for neutral strategies such as straddles and strangles. Straddles and strangles are strategies that involve simultaneously buying call and put options, betting on volatility rather than direction. The rising demand for these strategies indicates that traders expect significant price fluctuations in the future, but are uncertain about the direction.

The volatility index of the options market is also soaring. The 30-day implied volatility of Bitcoin has risen to over 80%, far higher than the 50% level at the beginning of the year. A high volatility environment is extremely unfavorable for leveraged traders, as sharp price fluctuations can lead to frequent stop-loss triggers and forced liquidations.

Reassessment of Interest Rate Cut Expectations and Its Association with Macroeconomic Risks

The current predicament of the crypto assets market is closely related to broader macroeconomic uncertainties. Traders are starting to question whether the Federal Reserve (FED) has grounds for a short-term interest rate cut, and this re-evaluation of expectations is repricing all risk assets. As expectations for rate cuts diminish, it indicates that interest rates will remain at higher levels for a longer period, which puts pressure on assets that do not generate cash flow, such as crypto assets and gold.

The delay in the release of key economic data has intensified uncertainty. Investors lack the latest inflation and employment data to assess the economic situation and can only make trading decisions based on incomplete information. This information vacuum often leads to a decline in risk appetite, with funds flowing into traditional safe-haven assets such as government bonds.

Looking ahead, whether the cryptocurrency market can stabilize depends on several factors: the clarification of the Federal Reserve (FED) policy path, improvements in macroeconomic data, and the recovery of liquidity in the crypto market itself. Until these conditions are met, the market may continue to seek a new equilibrium amid high volatility.