The Bitcoin market is in trouble! Leverage liquidity has vanished, and IBIT has withdrawn 523 million in a single day.

Bitcoin stabilized at 80,000 USD, but the market atmosphere is drastically different from early October. After the 19 billion USD liquidation event triggered by Trump’s tariffs on October 10, the order book depth disappeared, 3.6 billion USD flowed out of the ETF in November, BlackRock's IBIT had a single-day withdrawal of 523 million USD, and the leverage ratio dropped to a historical low, leading traders to intuitively feel that “something is wrong” which was validated by the data.

How the $19 Billion Liquidation Triggered by Trump's Tariffs Destroys Market Channels

(Source: Trading View)

The drop that occurred on October 10 was not an ordinary decline, but rather a systemic cleansing. Coin Metrics referred to it as “mass deleveraging,” and the process was as follows: news of Trump tariffs emerged, liquidity providers withdrew, and the leveraged market was forced to liquidate, triggering a chain reaction. Over $19 billion in leveraged positions were liquidated, a loss that far exceeded any previous crash, and it immediately sparked a frenzy in the options market to hedge against downside risks.

Scale is important because once it exceeds a certain threshold, the price no longer clearly reflects “people's thoughts,” but triggers forced selling, margin calls, and automatic liquidation, pushing the market into a void. Bitcoin fell more than 14% from its peak on October 6 (around $108,000) during the period from October 10 to 11, a speed and magnitude that is extremely rare in a bull market.

The more deadly factor is the chain reaction. Bitcoin plummets, and the crash of altcoins is even more severe. Coin Metrics points out that altcoins are hit harder during the deleveraging process because this part of the market needs reflexive momentum to survive. When Bitcoin loses momentum, funds do not stay in altcoins waiting for a rebound but instead withdraw directly from the entire crypto market. This dynamic not only leads to market declines but also changes market behavior in the following weeks, with market makers becoming cautious, retail trader activity shrinking, and every rebound feeling suspicious.

The collateral misalignment issue on Binance has further intensified the panic. Coin Metrics lists Ethena's synthetic dollar USDe as a notable victim, as its anchoring mechanism relies on hedging positions and market operations, being used as margin collateral on exchanges including Binance. During the crash, USDe briefly traded on certain platforms at prices far below $1, and Binance subsequently compensated approximately $283 million. This disparity, which varies by trading venue, made traders feel as if the rules changed overnight.

Liquidity Exhaustion and Order Book Depth Collapse

Traders' heartfelt feeling is that liquidity has vanished. When people say “there are no bids,” they mean that there are not enough genuine buy orders near the current price to take up the offer, so the price must drop further to find people willing to buy. Kaiko's in-depth research has come to a frustrating conclusion: there is almost no trading near the midpoint price on several exchanges, while meaningful buy orders appear at more distant positions, roughly between 4% and 10% away from the midpoint price, most notably on CEX.

Coin Metrics observed the same phenomenon from different perspectives, observing the order book depth of Binance BTCUSDT within a range of ±2% around the midpoint price. Under normal circumstances, this depth is sufficient to absorb normal sell-offs; however, during a crash, it thins drastically, and moderate selling pressure causes significant volatility. This is how the “pipeline” of cryptocurrencies operates; the market may always feel that liquidity is good until it suddenly loses liquidity.

Fast forward to December, even with stable prices, the liquidity in the spot market remains insufficient, indicating that the trading volume at major exchanges is still far below the levels seen in early October. Coin Metrics described a leverage reset consistent with the shift in market sentiment, with a significant reduction in open interest, weakened liquidity, and the market has yet to rebuild the same directional conviction. In more human terms: traders have suffered losses, market makers have become cautious, and the system can no longer easily keep up. This is why discussions about the “altcoin season” quickly faded away.

ETF capital outflows re-linked to macro risks

Bitcoin will spend most of 2024 and the first half of 2025 learning how to trade alongside institutional investors—spot Bitcoin ETF. When the fund flows are positive, it is a stable source of demand; when the fund flows turn negative, it drags down market sentiment, making it harder for investors to buy confidently during a downturn. The $3.6 billion outflow in November is not just a number, but represents a shift in institutional attitudes towards Bitcoin's short-term prospects.

The biggest change after October 10 is not related to the internal politics of cryptocurrencies, but rather that Bitcoin has been re-integrated into the macroeconomic scope. The characteristic of cryptocurrencies never closing makes them a global 24/7 risk assessment tool, and macro shocks can spread faster through cryptocurrencies than through any other means. In simple terms, risks have disappeared from the system, bonds and gold look safer, while Bitcoin's trading performance resembles that of high beta coefficient assets.

Three Major Indicators Deteriorate Overall

ETF Fund Flow Collapse: In November, a record withdrawal of 3.6 billion USD from spot Bitcoin ETFs, with BlackRock's IBIT seeing a single-day withdrawal of 523 million USD, shaking institutional confidence.

Order book depth thins: Buy orders are sparse within a range of ±2% of the midpoint price, with effective buy orders far beyond 4-10%, and moderate selling triggers massive volatility.

Leverage Ratio at Historical Low: Open interest has significantly decreased, liquidity has weakened, and traders are hesitant to re-leverage.