Why did the crypto market plummet? $510 million in liquidations within 12 hours and liquidity exhaustion trigger a chain reaction of crashes

On February 2nd, news reports indicate that the cryptocurrency market experienced a sudden and intense sell-off over the weekend. Bitcoin temporarily dropped below $75,000, hitting a low of $74,000 before quickly rebounding above $76,000. The short-term “V-shaped” movement exposed the risks of extreme volatility caused by insufficient market depth and high leverage resonance.

Data shows that within 12 hours, forced liquidations reached as high as $510 million, with longs losing $391.6 million and shorts $118.6 million. The liquidation structure was severely imbalanced, indicating that many traders were betting on an upward trend. When the price declined and triggered the liquidation mechanism, selling pressure was further amplified, leading to a stampede-like decline.

Mainstream assets came under broad pressure. Ethereum fell about 8% over 24 hours, while BNB, XRP, Solana, and others declined between 4% and 6%. Staked ETH assets also declined in tandem, whereas Dogecoin and TRON, with lighter speculative positions, experienced relatively limited drops.

Liquidity shortage was a key driver of this volatility. Over the weekend, traditional financial markets were closed, and institutional trading activity significantly decreased. The order book thinned, making it easier for small sell orders to break through technical support levels. After the concentration of stop-losses was triggered, Bitcoin resembled highly leveraged derivatives, with prices dominated by capital imbalance.

On the macro level, Chinese manufacturing data showed divergence. Official indicators indicated contraction, but due to capital controls on the RMB, the impact did not directly transmit to Bitcoin. Meanwhile, the total market capitalization of the crypto market evaporated about $121 billion in a single day, currently hovering around $2.51 trillion. If it falls below $2.50 trillion, it could dip further to around $2.39 trillion.

Regulatory factors are also brewing. The U.S. Treasury sanctioned two platforms registered in the UK, citing their handling of transactions related to Iran’s IRGC, and specifically mentioned the use of USDT on the Tron network. Additionally, a UAE-based entity acquired a 49% stake in World Liberty Financial, associated with Trump, for $500 million, reigniting market concerns about the relationship between politics and crypto capital.

This round of decline resembles a leverage deleveraging and liquidity stress test rather than a fundamental collapse, but high volatility environments are expected to persist.