Bitcoin drops to $78K – Decoding the $1.3B liquidation ‘freefall’

A lot of factors are being thrown around for today’s crypto selloff, from geopolitics to central banks. But the flow data shared by The Kobeissi Letter on X draws it down to one simple reason.

The market just ran out of liquidity.

Source: X

Bitcoin’s freefall state happened alongside three distinct liquidation events over about 12 hours, wiping out roughly $1.3 billion in positions. Each wave pushed prices lower as leveraged trades were automatically closed.

When liquidity is thin, heavy leverage leaves very little room for error. Prices can fall quickly because there aren’t enough buyers stepping in. Once liquidations start, they cause more selling, which pushes prices down even faster.

Crowd behavior amplified this.

As sentiment went bearish, traders rushed to the exit at the same time. A response like that stretches far beyond what the fundamentals alone would tell you.

Beyond crypto

According to Bull Theory, more than $12 trillion was wiped out from global markets in just 48 hours, as metals and equities sold off at the same time.

Precious metals took the hardest hit: gold fell over 16%, silver nearly 39%, and platinum and palladium dropped sharply as well. Equities followed, with losses across major U.S. indices.

Metals had rallied too far, too fast.

Silver, for example, had posted nine straight green monthly candles. That’s something we’ve never seen before.

Prices attracted late buyers using leverage.

When prices turned, margin calls kicked in, and it caused selling. Exchanges then raised margin requirements, which poured fuel on the fire. Traders were forced to post more collateral in falling markets, leading to even more liquidations.

A sudden shift in Federal Reserve leadership expectations (which removed a key bullish narrative) added to the unwind.

What the charts say about the future

Source: Alphractal

According to Alphractal CEO Joao Wedson, Bitcoin [BTC] traded below its major moving averages for the first time since 2022. Price is going beneath long-term trend lines that often mean broader phases.

Source: Alphractal

This has so far been an early buying zone, with these phases lasting months! For more conservative investors, this is where gradual dollar-cost averaging has worked best.

Wedson noted that the key is capital management. Deploying everything at once rarely pays off in periods like this.

Instead, past cycles have said to hold back some cash and add exposure slowly. This is especially when fear is abound and most people expect things to get worse.