Bitcoin Plunges to Nine-Month Low as $1.68 Billion in Liquidations Shake Market Amid Geopolitical Turmoil

Bitcoin's Painful Reset Reveals Troubling Correlation Shifts

Bitcoin's descent to nine-month lows has exposed more than just overleveraged traders—it's revealing a fundamental shift in how the cryptocurrency behaves during periods of macro uncertainty. While enthusiasts have long positioned Bitcoin as digital gold and a hedge against traditional market weakness, the current selloff tells a different story. Despite the U.S. dollar declining roughly 10% over the past year, Bitcoin has failed to rally as expected, instead trading down 13% and behaving more like a risk-sensitive tech stock than a safe haven asset ^[3]. This departure from historical patterns raises critical questions about Bitcoin's evolving role in investor portfolios as it trades 35% below its October all-time high of $126,000 ^[2].

The Facts

Bitcoin crashed to $81,058 on Coinbase during early Friday trading, marking its lowest point since April and representing a 35% decline from its October peak of $126,000 ^[2]. The selloff triggered a massive liquidation cascade, with 270,000 traders liquidated in 24 hours and total liquidations reaching $1.68 billion—93% of which were levered long positions predominantly in Bitcoin and Ether ^[2]. The broader cryptocurrency market shed $200 billion in total capitalization over the same period ^[2].

The catalyst for the decline appears multifaceted. Escalating tensions in the Middle East prompted the U.S. to dispatch warships toward Iran, with President Trump stating, "We have a lot of very big, very powerful ships sailing to Iran right now, and it would be great if we didn't have to use them" ^[2]. Trump also declared a national emergency and signed an executive order imposing tariffs on countries selling oil to Cuba, further spooking markets ^[2].

Traditional safe havens didn't escape the carnage either. Gold sold off 9% from its all-time high of $5,600 per ounce, while silver corrected 11.5% ^[2]. The German publication BTC Echo reported that the crypto market's correlation with gold currently sits at 90%, underscoring a broader risk-reduction trend across all asset classes ^[4]. In fact, only one of the top 100 cryptocurrencies managed to post gains during the selloff—Canton (CC), a real-world asset project ^[4].

Jeff Mei, chief operations officer at BTSE exchange, pointed to disappointing technology earnings as an additional factor. "Last night's market dip had a clear correlation to Microsoft's earnings flop," he told Cointelegraph, noting that Microsoft's stock tanked 10% after reporting record spending and slowing cloud sales growth—its sharpest decline since March 2020 ^[2]. "Investors are worried that a broader pullback in AI-related tech stocks will affect the market as a whole, and some are derisking their portfolios," Mei explained ^[2].

JPMorgan analysts offered a sobering assessment of Bitcoin's recent behavior, noting that the cryptocurrency's weakness is "driven more by short-term market sentiment and liquidity conditions than by the recent decline in the US dollar" ^[3]. They emphasized that Bitcoin continues to trade in line with broader risk sentiment rather than functioning as a store of value like gold, particularly after Federal Reserve Chair Jerome Powell maintained a hawkish stance that weighed on risk assets ^[3].

The Crypto Fear & Greed Index plummeted to an "extreme fear" score of 16, indicating that investors are significantly cautious about the crypto market ^[1]. Bitcoin liquidations specifically surged by 487%, with approximately $772 million in Bitcoin positions forcibly closed ^[4].

Analysis & Context

This selloff represents more than just another Bitcoin correction—it signals a potential paradigm shift in how institutional and retail investors perceive cryptocurrency during macro uncertainty. The simultaneous decline of Bitcoin, gold, and silver suggests this wasn't a rotation out of crypto into traditional safe havens, but rather a wholesale deleveraging across all perceived risk assets. The fact that Bitcoin fell even as the dollar weakened contradicts the inverse correlation that has historically defined their relationship.

The 487% surge in Bitcoin liquidations reveals dangerous levels of leverage that had accumulated in the market during the rally to $126,000. This cascading effect—where falling prices trigger margin calls, forcing more selling, which triggers more margin calls—has historically marked capitulation phases that precede recoveries. However, the current macro backdrop is more complex than previous cycles.

Analysts remain sharply divided on what comes next. Crypto analyst Benjamin Cowen struck a bearish tone, arguing that Bitcoin is "likely going to keep bleeding against the stock market" and that expectations of a "massive rotation" from precious metals into crypto are misplaced in the short term ^[1]. Cowen emphasized that despite gold and silver hitting all-time highs, the anticipated flow into Bitcoin "probably not going to happen" immediately ^[1].

Conversely, Swyftx lead analyst Pav Hundal sees potential for a near-term reversal, noting that "Bitcoin bottoms have historically lagged gold's relative strength by about 14 months" ^[1]. Hundal anticipates the rotation could materialize in February or March, stating, "If history repeats, and it is a big if, the gold-Bitcoin dynamic points to a potential BTC bottom forming over the next 40 days" ^[1]. He explained that gold typically leads during periods of macro stress, and Bitcoin follows once risk appetite returns.

Andre Dragosch, head of research at Bitwise Europe, argued that Bitcoin "is trading at a steep discount to Gold on a relative basis," calling these "asymmetric setups" very rare and suggesting that "if flows turn, Q1 2026 could be the inflection point" ^[1]. However, JPMorgan's assessment that Bitcoin will likely continue lagging traditional inflation and currency hedges "until macro fundamentals, such as shifts in growth expectations or interest rate dynamics, take over" ^[3] suggests the path forward remains uncertain.

The technical picture adds another layer of concern. Bitcoin has broken below the critical $85,000 support zone on the 4-hour chart, with the Relative Strength Index falling to 23.27—deeply oversold territory ^[3]. While this suggests potential for a relief bounce, the prevailing trend remains bearish until support levels are regained, with resistance appearing near $87,500-$88,000 ^[3].

Key Takeaways

• Bitcoin's failure to rally despite dollar weakness signals a fundamental shift in its market behavior, with the cryptocurrency currently trading as a risk-sensitive asset rather than a safe haven—a development that challenges its "digital gold" narrative.

• The $1.68 billion liquidation event, with 93% being long positions, demonstrates dangerous leverage levels had accumulated in the market and suggests the washout may represent a necessary reset before sustainable growth can resume.

• Analysts are deeply divided on timing: bears like Benjamin Cowen expect continued bleeding, while bulls like Pav Hundal see a potential bottom forming within 40 days based on historical gold-Bitcoin lag patterns—making the next 6-8 weeks critical for determining Bitcoin's medium-term trajectory.

• The 90% correlation between Bitcoin and gold during this selloff, combined with geopolitical tensions and tech earnings disappointments, reveals that macro factors—not crypto-specific news—are driving price action, meaning traditional market analysis may be more relevant than on-chain metrics in the near term.

• With Bitcoin at deeply oversold levels (RSI of 23) and trading 35% below all-time highs, current prices may represent either an attractive accumulation zone or a pause before further decline—the answer depends largely on whether broader market risk appetite returns and geopolitical tensions ease.