Bitcoin's record-breaking rally hits sudden turbulence: Will it last long?

27/08/2025 05:17 AST

Bitcoin's record-breaking rally has hit turbulence. A day after the world's largest cryptocurrency plunged from $114,780 to $110,484, it sank as low as $108,719 in early Tuesday trading, triggering more than $900 million in liquidations across the broader crypto market.

Some analysts say the collapse was not random but a classic liquidity flush. Traders who had piled into leveraged long positions, betting on Bitcoin holding above $114,000, were caught off guard when larger players dumped around 24,000 BTC worth $2.7 billion. That sell-off forced a cascade of stop-losses and liquidations, accelerating the drop.

The shakeout comes just days after Bitcoin touched a new all-time high above $124,000, fuelled by optimism over U.S. interest rate cuts. Lower borrowing costs typically weaken the dollar and support riskier assets, but macroeconomic strains are clouding the outlook.

Ethereum's rally stalls
Ethereum briefly stole Bitcoin's spotlight, notching a fresh record of $4,955 before sliding back to $4,420. The token remains one of 2025's top performers - up nearly 40% year-to-date - but also faced heavy losses, with $320 million in Ethereum long positions liquidated in 24 hours, the largest wipeout among major coins.

Altcoins were not spared: Solana, Dogecoin, and XRP each dropped between 5% and 8%, erasing about $166 billion from total crypto market value in a single day.

Macro pressures build
The sell-off comes against a backdrop of tightening liquidity and rising macro risks. While markets are pricing in an 84% chance of a Federal Reserve rate cut in September, some analysts warn that financial system liquidity tells a different story.

Analysts pointed to the Fed's overnight reverse repo facility - a key liquidity source - being "fully drained" for the first time since 2021. He noted the parallel with 2022, when Bitcoin crashed 65% under similar conditions. In other words, unless the Fed pivots back to quantitative easing, the contraction in liquidity could spell serious pain for crypto markets.

Key levels in focus
Investors are now watching whether Bitcoin can stabilise above $110,000. A break below that level, with $108,000 as the next major support, could pave the way for a retest of $100,000. Derivatives data show growing demand for protective puts over bullish calls - signalling traders are bracing for more downside.

"It's been a bloody start to the week," said Sean Dawson of Derive.xyz, adding that nearly all liquidations stemmed from long positions.

September risk looms
Seasonality is another worry. Analyst Benjamin Cowen noted that in previous cycles - 2013, 2017, and 2021 - Bitcoin rallied through the summer before suffering steep September declines. If history repeats, Bitcoin's pullback may not be over.

Bottom line: Bitcoin's sharp reversal from record highs has exposed over-leveraged traders, dragged down altcoins, and reignited debate over U.S. liquidity risks. With whale moves, macro headwinds, and historical patterns converging, the coming weeks could prove decisive for the entire crypto market.

Gulfnews