Bitcoin has experienced a significant decline, dropping below the $90,000 mark, primarily due to a wave of long liquidations. A buildup of heavy leverage meant that even a slight dip in price triggered stop-loss orders, leading to forced selling that exacerbated the downturn. This sell-off was further influenced by traders” actions to minimize risk ahead of the U.S. Core PCE inflation report, which is known for causing market volatility. With liquidity remaining relatively tight, even moderate selling pressure resulted in a rapid descent, pulling BTC into the high $89,000s.
However, the bearish trend was short-lived. Shortly after the drop, the Core PCE inflation rate was reported at 2.8%, slightly below the expected 2.9%. This outcome reinforced the notion that inflation continues to decelerate. Expectations for interest rate cuts have also gained traction, with Morgan Stanley projecting a 25 basis point reduction in December and White House advisor Kevin Hassett advocating for a shift in the Federal Reserve”s approach. Additionally, the termination of quantitative tightening marks a pivotal shift in liquidity conditions, as historical data indicates that every major bull run for Bitcoin has coincided with liquidity expansion.
The return of liquidity is visible with a notable $500 million minting of USDC, indicating that new capital is poised to enter the cryptocurrency market—a classic indicator of potential upward momentum. Furthermore, institutional interest has surged, with BlackRock depositing over $120 million in BTC into Coinbase Prime, while Vanguard has opened Bitcoin ETF access to 50 million clients. Additionally, financial giants like JPMorgan and Goldman Sachs are increasing their exposure to crypto through new products and acquisitions. The dominance of USDT is beginning to wane as capital flows out of stablecoins and back into risk assets, further reinforcing the transition towards a more favorable liquidity environment.
Looking ahead for Bitcoin, should it manage to maintain its position above $90,000, key resistance levels to watch are $92,500, $95,000, and the psychologically significant $100,000 mark. The recent drop appears increasingly like a liquidity flush rather than a fundamental breakdown. In the event of a retest of previous lows, support levels are identified at $88,000 and $86,500. However, the broader macroeconomic landscape—characterized by falling inflation, increased stablecoin liquidity, the end of quantitative tightening, and heightened institutional accumulation—suggests a stronger possibility for recovery rather than continued declines.
Ultimately, Bitcoin“s recent decline was not a reflection of weakened fundamentals but rather a consequence of leverage unwinding at a moment when the macroeconomic environment turned bullish.
