SuperEx丨Bitcoin Briefly Falls Below $87,000 - What's Happening in the Market?
#SuperEx #Bitcoin #Crypto
Between February 24 and 25, 2025, Bitcoin experienced a violent price swing - one that could be described as a full-blown storm. From its initial drop below $95,000 on the evening of February 24 to hitting an intraday low of $86,940 on February 25, Bitcoin plummeted over 8% within 24 hours, marking its steepest single-day decline since November 2024. This selloff not only recorded the largest daily drop of the year but also triggered a ripple effect across the broader crypto market - Ethereum's daily losses widened to 13%, briefly dipping below $2,300, while Dogecoin, TrumpCoin, and other meme tokens tumbled over 14%.
The extreme volatility was driven by a combination of factors, including shifts in macroeconomic policy, changing market sentiment, and a series of internal risks within the crypto industry.
Federal Reserve Policy Shift and Stronger U.S. Dollar: The Final Straw That Broke the Market
On February 24, two key U.S. economic indicators sparked a dramatic market shift. First, the U.S. February Services PMI unexpectedly contracted to 47.8, its lowest level since October 2022. Second, long-term consumer inflation expectations from the University of Michigan surged to 3.5%, the highest level since 1995. While manufacturing PMI expanded beyond expectations, most analysts viewed this growth as a short-term effect of businesses accelerating purchases ahead of new tariffs. The combination of sluggish services data and soaring inflation expectations reinforced the likelihood of the Federal Reserve maintaining its hawkish stance for longer.
Michael Barr, Vice Chair of the Federal Reserve, exacerbated market concerns in his February 24 speech, stating:
"Current inflation pressures remain above target levels, and rate cuts require more definitive evidence before proceeding."
This statement propelled the U.S. Dollar Index (DXY) to 108, its highest level of the year, directly weighing on Bitcoin and other risk assets. Historically, the correlation coefficient between Bitcoin and the dollar index has been -0.72, indicating a strong inverse relationship - when the dollar strengthens, Bitcoin tends to weaken. During this Bitcoin downturn, the DXY surged 0.9% in a single day, acting as a key driver of Bitcoin's decline.
Additionally, the Federal Reserve's accelerated balance sheet reduction has intensified liquidity pressures. As of February 24, the Fed's balance sheet had shrunk to $6.9 trillion, an 18% decline from its 2024 peak. Market estimates suggest that at this pace, global dollar liquidity will shrink by approximately $1.2 trillion in 2025, posing a direct threat to leveraged crypto markets.The Bybit Hack: A "Butterfly Effect" of Trust Erosion
On February 21, Bybit, one of the world's largest crypto exchanges, suffered a $1.5 billion ETH hack, marking the biggest crypto theft in history. Despite Bybit's swift commitment to fully compensate users and securing industry support to cover the losses within 12 hours, the aftermath of the hack extended far beyond expectations.
Exchange Security Under Scrutiny: Blockchain data shows that in the 24 hours following the attack, centralized exchanges (CEXs) saw a net outflow of 87,000 ETH, the highest since June 2024. Investors rushed to move funds to cold wallets and decentralized platforms, draining liquidity from CEXs.
Institutional Stability Concerns: Bybit serves as a custodian for BlackRock's Bitcoin ETF, and its security breach raised concerns among traditional financial institutions about increasing exposure to crypto assets. In response, Bitcoin ETFs recorded a net outflow of $230 million on February 22 - the largest since January 2025.
Regulatory Ramifications: The incident heightened expectations of stricter regulation. On February 24, the South Dakota legislature delayed a bill that would have allowed state funds to invest in Bitcoin, citing uncontrollable exchange risks. The market interpreted this move as a precursor to broader regulatory crackdowns, further denting investor confidence.Leverage Liquidations and Panic Selling: The Selloff Amplifier
Crypto's highly leveraged nature magnified the scale of this downturn. Data from Bybit and Binance shows that between February 24 and 25, total crypto liquidations surpassed $1.24 billion, with over 360,000 traders forced to close positions.
Bitcoin longs accounted for 73% of total liquidations, indicating widespread panic-driven selloffs and cascading liquidations.
Leverage risk had been accumulating for weeks. After Bitcoin broke $100,000 in January, market leverage ratios (open interest/market cap) surged to 4.8%, approaching the 2021 bull market peak.
Triggering the downward spiral: On February 24, Bitcoin fell from $94,000 to $90,880 within one hour, causing $420 million in long liquidations, which then accelerated forced sell-offs, further driving down prices.
The structural imbalance in derivatives markets exacerbated volatility. As of February 25, Bitcoin perpetual funding rates remained positive at 0.05%, indicating that most traders were still betting on a rebound. This "asymmetric positioning" meant that when the market dropped, there weren't enough buy orders to absorb selling pressure, leading to a rapid liquidity collapse.
- Technical Breakdowns and Sentiment Reversal
From a technical perspective, Bitcoin's crash was triggered by a series of key support breakdowns:
On February 24, Bitcoin fell below its 200-day moving average at $95,000.
Shortly after, $90,000, a major psychological support, was breached, triggering automated sell orders from algorithmic traders.
When Bitcoin dipped below $87,000, over 2.6 million BTC (13.2% of circulating supply) fell into a loss, prompting panic selling from short-term holders.
Sentiment also turned sharply bearish. According to Alternative.me's Crypto Fear & Greed Index, market sentiment plummeted from 78 (greed) to 29 (fear) within a week, reaching its lowest level since March 2024.
Google searches for "Bitcoin crash" surged 420% in 24 hours.
Twitter discussions related to the Bitcoin drop spiked 230%.
- Diverging Capital Flows: Gold vs. Bitcoin in a Safe-Haven Battle
Interestingly, while Bitcoin was plunging, gold surged to a new all-time high. On February 24, spot gold broke $2,450/oz, up 18% YTD, sharply diverging from Bitcoin.
Institutional portfolio rebalancing drove this shift. Goldman Sachs raised its 2025 year-end gold target to $3,100/oz and cut crypto exposure recommendations from 5% to 3%.
Berkshire Hathaway's cash reserves hit a record $334.2 billion, with Warren Buffett stating in his shareholder letter that he preferred holding quality businesses over volatile assets.
This defensive tilt weakened crypto market inflows, further pressuring Bitcoin prices.
Final Thoughts: A Necessary Reset Before the Next Cycle?
The February 2025 Bitcoin crash was a correction of excessive optimism, fueled by a confluence of Federal Reserve tightening, industry security risks, and leverage excesses.
Key takeaways for investors:
Liquidity Management Matters: In a tightening dollar liquidity cycle, risk assets require stricter risk controls, with leverage ratios ideally cut by 50% during bull markets.
Security & Compliance Take Center Stage: Exchange security, regulatory stability, and asset fundamentals must be central to investment strategies, particularly in an institutional-driven market.
Diversification is Key: The divergence between Bitcoin and gold underscores the necessity of multi-asset hedging, as single-asset bets struggle against macro shifts.
Despite short-term turbulence, crypto's long-term thesis remains intact. Standard Chartered maintains its $500,000 Bitcoin target during Trump's presidency, while Ark Invest reaffirms its $1.5 million BTC projection for 2030.
As history has shown, crises often mark the beginning of new cycles - but this time, only disciplined investors who withstand the volatility will witness the dawn of the next bull run.
