Coin liquidation chain reaction, is "weakening market structure" the real culprit?

Rapid Rise Before Sharp Drop…Billions of Dollars Settled in Just 2 Hours

Last week, a sudden reversal unfolded during U.S. trading hours. Bitcoin and Ethereum surged strongly in the early minutes of the market open, only to give back all of those gains within a few hours.

Specifically, Bitcoin soared from $86,000 to the $90,000 range, then plummeted back to the $85,000 level, while Ethereum rose from $2,900 to $3,100 before falling to $2,800.

Amidst this, the scale of coin liquidations was significant. According to CoinGlass, over $400 million in leverage positions were liquidated at once across the global cryptocurrency futures markets. Notably, approximately $11.08 million in liquidations on the decentralized perpetual futures platform Hyperliquid’s HYPE/USD accounted for the largest single liquidation.

By asset, Ethereum suffered more damage. ETH liquidations exceeded $150 million, mostly from long positions being closed. Meanwhile, Bitcoin saw $140 million in liquidations, with short liquidations totaling $78 million, showing a typical chain liquidation pattern where short positions are wiped out first during upward moves, followed by long positions during declines.

“Institutional Intervention” vs “Algorithmic Liquidity Hunting”

This kind of rapid rise and fall is not unprecedented. Similar patterns have repeated more than four times over the past two weeks. Some in the market suspect this is a deliberate attempt by large institutions to manipulate prices.

There are other interpretations as well. Some believe it is a mechanical process where automated trading algorithms quickly sweep stop-losses and leverage in thin liquidity zones. Regardless of which is correct, the outcome is the same: an extremely unfavorable environment for leveraged holders.

ETF Outflows Undermining Market Stability

A more fundamental issue pointed out by experts is the weak flow of ETF funds.

According to SoSoValue data, Bitcoin and Ethereum ETF net outflows exceeded $1 billion over the past two days. In a normal market, new funds would continue to flow in, absorbing volatility. But when funds exit, prices become easily volatile even with small shocks.

Mike Marshall, head of Amber Data Research, diagnosed, “The market structure at the lower price levels is weak, and ETF inflow trends are also feeble, making it difficult for the market to recover quickly when momentum reverses.” He added that the combination of interest rate variables and risk-averse sentiment further reinforces the bearish trend.

Where is the Next Target Range?

Based on ETF purchase price analysis, Marshall sees the “meaningful first bottom” around $80,000. If ETF outflows continue or financial conditions tighten further, he warns that “$60,000 will become the next major benchmark.”

As of December 24, ( Bitcoin is trading around $87,330, down 0.36% in 24 hours. Ethereum is trading around $2,930, down 0.88% in the same period.

The chain reaction of coin liquidations continues likely due to a combination of market liquidity shortages and capital outflows. Going forward, the flow of institutional investor funds and interest rate policies are expected to be key variables.