Bitcoin price correction triggers derivatives crisis, market liquidity dilemma emerges

Cryptocurrency markets faced a test early this week, with Bitcoin experiencing a significant correction during initial trading, dropping from above $95,000 all the way down and ultimately breaking below the $93,000 level. According to the latest data, Bitcoin’s current trading price has adjusted to around $90,110, with a 24-hour change of +1.09%. This correction once again highlights the fragile nature of the market fundamentals—an upward trend driven by derivatives lacking sustained support from the spot market.

Derivatives Market Panic and $860 Million Forced Liquidation

According to CoinGlass data, during Bitcoin’s retreat from the $95,000 to $97,000 range, over $860 million in crypto derivatives positions were forcibly liquidated in the past 24 hours, with long positions accounting for $780 million. This exposes the problem of overly concentrated bullish bets during the previous rebound.

This situation reflects a core dilemma in the market: once Bitcoin’s price reverses, over-leveraged long positions can quickly trigger a chain reaction of forced liquidations, creating a panic sell-off effect and intensifying downward momentum. Industry analysts point out that this is a typical “long squeeze” phenomenon—optimistic sentiment accumulated earlier rapidly turns into market panic after price triggers stop-loss points.

On the other hand, the international markets also show signs of risk asset pressure. Gold prices continued to hit new highs, rising 1.7% to $4,600 per ounce. The background factors include the U.S. announcing a 10% tariff increase on Denmark and seven other European countries, and stating that measures will not be withdrawn until a comprehensive acquisition agreement with Greenland is completed. Geopolitical risks have heightened, boosting demand for safe-haven assets.

Liquidity Dry-Up: Fragile Foundations of the Derivatives Market

According to weekly analysis from on-chain analytics firm Glassnode, Bitcoin’s previous attack on $96,000 largely relied on the “mechanical” buildup of derivative capital flows, mainly driven by forced liquidations caused by short squeezes, rather than sustained buying support from the spot market.

Glassnode notes that futures market liquidity remains relatively thin, and once the forceful buying pressure subsides, Bitcoin’s price can easily reverse sharply. The firm highlights a key pressure zone—“supply concentration” accumulated by long-term holders near cycle highs—this area has repeatedly doused recent rebounds and remains a major resistance to price increases.

This phenomenon indicates that the current upward momentum in the market is not driven by genuine demand but by technical position adjustments and leverage arbitrage activities. Once these passive factors diminish, Bitcoin’s price faces the risk of further declines.

Technical Analysis: Bear Market Rebound or Bottom Signal?

Opinions among different analytical institutions vary regarding Bitcoin’s future trend. CryptoQuant adopts a relatively conservative stance, believing that the recent movement since late November resembles a potential “bear market rebound” rather than the start of a new bullish cycle. The firm emphasizes that Bitcoin is still below the 365-day moving average (around $101,000), which has traditionally been viewed as the “bull-bear dividing line.”

CryptoQuant’s report states that although short-term demand has slightly improved, the overall market structure has not undergone substantial change. Spot demand remains weak, and capital inflows into the US Bitcoin spot ETF are still sluggish, all suggesting limited upward momentum. However, the signs observed by Glassnode offer a different perspective.

Spot Market Turning Point Emerges, Bottom Building Signals Strengthen

Compared to the end of the year, the pace of long-term holders’ distribution has significantly slowed, which is often seen as a sign that a market bottom is gradually forming. Meanwhile, spot capital flows on major exchanges like Binance have shifted to buyers, and selling pressure from Coinbase is easing. These signs collectively point to a bottoming and stabilization process.

Options markets also reflect cautious sentiment among market participants. Although implied volatility remains low, long-term contracts still contain downside protection, indicating that investors continue to harbor considerable uncertainty about Bitcoin’s future price.

Beware of Liquidity Changes, Bitcoin Price Will Be Highly Sensitive

Both Glassnode and CryptoQuant agree that before sustained spot demand returns, Bitcoin’s price will be highly sensitive to changes in leverage and liquidity. Any large position adjustments in derivatives markets in the short term could trigger sharp volatility in Bitcoin’s price. Investors should remain vigilant and guard against sudden price gaps.

Currently, Bitcoin is oscillating around $90,110, with the market in a stalemate between bulls and bears. Whether this ultimately proves to be a bear market rebound or a bottom-building process, investors should continuously monitor spot market demand and liquidity changes while carefully assessing their own risk tolerance.