Bitcoin "Flash Crash": The 72-Hour Journey from $87,000 to $75,000

Liquidity Crunch Meets Macro Storm: What Is the Crypto Market Experiencing?

I. The Heart-Stopping Moment: Bitcoin's "Free Fall"

On the first trading day of February 2025, the cryptocurrency market experienced a textbook panic sell-off.

At 9:00 AM Eastern Time on January 29, Bitcoin began to decline from around $87,000, dropping over 7% within 24 hours and breaking through the $81,000 level. By the early morning of February 2, Bitcoin briefly fell below $75,000, about 40% below its peak in 2025. This was the most severe weekly performance since November 2024.

CoinGlass data shows that on February 1 alone, over 420,000 traders were liquidated worldwide, with total liquidations exceeding $2.5 billion, over 90% of which were long positions. On February 2, another more than 160,000 traders were forcibly liquidated. This "bloodbath" came suddenly but was within expectations.

II. Triple Blow: The Straw That Broke the Camel's Back

First: The Chain Reaction of the AI Bubble Burst

It all started with Microsoft's earnings report.

On January 29, Microsoft’s Q4 earnings fell short of market expectations, reigniting fears of an overhyped AI investment bubble. The Nasdaq plummeted, and risk assets faced a broad sell-off.

But the real killer was the breach of Bitcoin’s active realized price (Active Realized Price) at the $87,000 level.

The active realized price excludes long-dormant holdings and only considers the average cost of circulating tokens. It marks the profit/loss boundary for current active investors. Falling below it indicates most traders are in loss simultaneously.

Bitcoin decisively broke through this vital support line.

Second: The "Wash Shock" Triggers Liquidity Panic

At 8:00 PM on January 29, the second wave of selling hit.

Bloomberg and Reuters reported that President Trump was preparing to nominate Kevin Warsh as the next Federal Reserve Chair. On January 30, Trump officially announced the nomination on social media, calling Warsh "one of the greatest Fed Chairs in history."

Why was the market so panicked?

During 2006-2011, Warsh served as a Fed governor and was a staunch opponent of quantitative easing. When the Fed launched a second round of QE in 2011, he resigned in protest. In market eyes, he was a clear "hawk."

Trump aimed to cut interest rates to around 1%, but Warsh’s policy stance created subtle tension. Although Warsh recently proposed a "limited rate cut + balance sheet reduction" compromise in a Wall Street Journal column, trying to balance inflation discipline with policy flexibility, the market was more worried about liquidity tightening.

Cryptocurrencies historically perform well in abundant liquidity. The prospect of Warsh leading the Fed further dampened already tight market liquidity expectations.

Third: The Amplifying Effect of the Liquidity Black Hole

Behind both declines lies a common deep reason: trading volumes in Bitcoin’s spot and futures markets have been shrinking continuously.

When market liquidity is low, even minor shocks can trigger excessive price swings. A stark contrast is that stocks and commodities rebound quickly after short-term dips, but Bitcoin has failed to follow suit.

Currently, the market is "avoiding" Bitcoin. Trading volume continues to shrink, selling pressure persists, and price rebounds become increasingly difficult. As analysts note, this sell-off is not driven by panic but by a lack of buyers, momentum, and confidence.

III. Technical Breakdown: Key Support Levels Continuously Breached

From a technical analysis perspective, Bitcoin faces severe tests:

• $84,000: Critical structural support lost

• $80,000: The level where buyers concentrated in November last year broken

• $75,000: The low tested during the April 2025 tariff turmoil

Ledn’s Chief Investment Officer John Glover believes this correction may be a normal retracement from Bitcoin’s October high of $126,000, with a possible bottom around $71,000, down 43% from the previous high. Russell Thompson, CIO of Hilbert Group, is more pessimistic, suggesting short-term support is lacking and the price is likely to drop below $70,000.

What worries the market more is that the 50-day moving average has crossed below the 200-day moving average, forming a "death cross," a medium-term bearish signal.

IV. Institutional Retreat: ETF Fund Outflows Ring Alarm

Bitcoin ETFs, which flourished in 2024, are now experiencing winter.

Data shows that in December 2025, Bitcoin ETF net outflows reached $3.5 billion, the worst since February. This starkly contrasts with the previous five weeks’ net inflow of $6.63 billion and BlackRock’s crypto portfolio surpassing $100 billion—indicating institutional funds are quietly withdrawing.

This withdrawal is not hard to trace. When Bitcoin fails to respond substantively to geopolitical tensions, dollar weakness, or gold rallies, it signals a decoupling of market correlation, with funds seeking safer havens.

V. Policy Outlook: Friendly Regulations but Urgent Challenges Remain

Despite market pressure, positive signals from regulators continue:

• SEC and CFTC are gradually implementing crypto-friendly policies

• The door is opening for 401(k) retirement accounts to include cryptocurrencies, potentially unlocking up to $1 trillion in capital inflows

• Legislation on digital asset market structure is advancing rapidly

However, these medium- and long-term positives cannot offset short-term macro uncertainties. Bitcoin is likely to continue following stock market swings in the near term. With $80,000 already breached, further downside risks cannot be ignored.

VI. Historical Perspective: Bull Market Correction or Bear Market Beginning?

Faced with this plunge, a key question is: Is this a healthy correction within a bull market or the start of a new bear cycle?

Arguments supporting a "bull correction" include:

• Global liquidity remains expanding

• Institutional strategic positions remain firm

• The Bitcoin network itself shows no operational issues

• Long-term holders (HODLers) have not exited en masse

But some analysts warn that if Bitcoin drops below $75,000, it could trigger a more severe sell-off. Derek Lim, head of Caladan Research, suggests Bitcoin is more likely to consolidate between $83,000 and $95,000 rather than start a one-sided rally.

Reviewing your previous analysis of the $91,000 and $3,000 (Ethereum) technical levels, the current trend indeed validates that view—markets are searching for a new equilibrium, a process destined to be volatile.

VII. Market Outlook: Finding Anchors Amid Uncertainty

Short-term (1-3 months): Uncertainty remains high. Bitcoin may continue to follow US stocks, with $75,000–$80,000 as a key battleground. If US stocks stabilize, Bitcoin could see a technical rebound; if macro conditions worsen, the $70,000 level will be tested.

Medium-term (3-6 months): Once stocks enter consolidation, Bitcoin may once again benefit from capital rotation. Historical experience shows that whenever tech stocks stall due to bubble fears, funds tend to flow into alternative assets.

Long-term (beyond 6 months): The truly unchanging factors are more important. Global liquidity expansion, institutional strategic allocations, and supply scarcity post-halving remain intact. The current correction is merely short-term excessive volatility driven by thin liquidity.

Conclusion: Anchoring in the Storm

From $87,000 to $75,000, Bitcoin delivered a brutal lesson in just 72 hours: in a market with liquidity exhaustion, there are no absolute safety margins.

But if you agree with the previous strategy of "using gold as a risk control anchor, allocating 30%-40% of your portfolio, and deploying the rest in Bitcoin and quality mainstream coins," then now might be the time to test this asset allocation framework.

Markets always breed opportunities amid extreme emotions. When 420,000 traders are liquidated and the Fear & Greed Index drops to "Extreme Fear," contrarian thinking becomes especially valuable.

What is your view on this Bitcoin crash? Is it a good buying opportunity or just a dip in a downtrend? Share your thoughts in the comments!

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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrency markets are highly volatile; please make decisions cautiously according to your risk tolerance.

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