Rapid decline in cryptocurrencies: dual pressure from macro concerns and leverage liquidations

Last month, due to a rapid shift in the global macro environment combined with internal market factors, cryptocurrencies experienced a significant correction phase. During this period, the crypto market faced multiple pressures, creating a tough environment for many investors. Looking at the latest price movements, Bitcoin is at $68,910 (down 1.99% in 24 hours), Ethereum at $1,980 (down 3.63%), and Solana at $86 (down 3.94%), with each asset under downward pressure. Several key factors are intertwined behind these crashes.

Escalation of Geopolitical Risks and Uncertainty in Monetary Policy

The primary external factor behind last month’s market volatility was the rapid turnaround in the international policy environment. As multiple European countries considered imposing high tariffs, risk aversion quickly spread in the market. This geopolitical tension pushed up the spot price of gold, typically considered a safe haven, but had the opposite effect on highly volatile assets like cryptocurrencies.

According to institutional investors, such geopolitical shocks tend to trigger short-term risk aversion, especially causing cautious stances even among conservative investors who do not use leverage. At the same time, uncertainty surrounding the Federal Reserve’s next leadership candidate added to the pressure. Previously, moderate candidates were favored, but support rapidly shifted toward more hawkish contenders. This shift suggests that market liquidity conditions may soon reach a peak, raising concerns for crypto investors.

Research from analysis firms indicates that when market sentiment turns bearish and expectations of tightening monetary policy grow, highly liquid assets like cryptocurrencies are among the first to face selling pressure, as confirmed by historical data.

Chain Reaction of High-Leverage Liquidations Accelerates the Crash

Internal factors within the crypto market also played a crucial role, particularly the accumulation of high-leverage long positions over the past week. At that time, Bitcoin had recorded significant gains compared to the previous week, prompting active leveraged buying based on continued upward expectations.

In markets with such bullish positioning, once prices fall below key support levels, stop-loss orders are triggered in a chain reaction, amplifying selling pressure exponentially. Data shows that during the early stages of the decline, liquidation amounts surged dramatically. Total liquidations within 24 hours exceeded $800 million, mostly from long positions being cut. This automatic liquidation mechanism accelerated the market’s downward speed, producing price movements far beyond typical fluctuations.

Chain analysis firms highlight that during this phase, selling pressure was especially concentrated during hours when the U.S. spot ETF market was closed. This suggests that large institutional funds may have detected early warning signals and proactively executed stop-loss orders.

Technical Perspective on the Need for Correction and Market Structure

From a more detailed technical analysis, the recent correction in cryptocurrencies had intrinsic justification. At that time, Bitcoin’s price was very close to the average purchase cost of short-term holders. When the gap between the two narrows to about 4%, it often signals a market turning point, accompanied by increased volatility.

In such situations, profit-taking sales and new buying pressures clash intensely, and subtle shifts in market psychology can trigger large price swings. Analysts note that, from a technical standpoint, the market structure in January reflects a natural correction after a significant rally early in the year, serving as a necessary process for the market to normalize from an overheated state.

Interestingly, when examining the broader risk asset markets during the same period, the correction in cryptocurrencies was notably larger than in other categories. This reflects the unique liquidity characteristics of the crypto market and the widespread use of high leverage.

Persistence of Market Correction and Reassessment by Investors

The recent correction, driven by a combination of external shocks and internal factors, is not just a temporary dip but a fundamental reassessment by market participants. Until macroeconomic concerns are alleviated, high volatility is expected to continue.

Major financial analysts suggest that the market may remain within a certain range throughout January, with support levels potentially lower than previously anticipated. At the same time, many investors are beginning to rebalance their portfolios away from cryptocurrencies toward other risk assets, highlighting a temporary narrowing of relative outperformance.

The lessons from this crypto crash emphasize that market reactions are highly volatile when multiple pressure factors act simultaneously, especially with high-leverage positions. For the market to regain stability, easing geopolitical tensions and clarifying monetary policy outlooks will be essential conditions.