How Bitcoin’s break unfolded
Late November has been brutal for Bitcoin. The asset has shed over 30% of its value since reaching its $126,000 high just a month ago.
Currently, we are witnessing a bounce attempt. Traders are reacting to news that the next Fed Chair will likely be Kevin Allen Hassett, a Trump loyalist who supports crypto regulation and favors looser monetary policy.
However, the Realized Price for Short-Term Holders (buyers from the last 155 days) is sitting at $84,500. If the price breaks below that level, millions of recent buyers will be underwater. That creates a significant amount of unrealized loss and is precisely the kind of setup that sparks panic selling.
Let’s dig into what is actually driving this crash.
Systemic liquidity drain
Bitcoin price moves with liquidity. It has consistently shown a high correlation (average of 0.85) with Global M2 Supply.
Since late summer, the US Treasury has been replenishing its General Account (TGA) following the resolution of the debt ceiling fights.
Approximately $350 billion was withdrawn from the system — cash that was directly drained from financial markets. Due to this contraction in the money supply in Q4, risk assets take the hit first, with Bitcoin at the forefront.
The “basis trade” unwind
A significant portion of the money poured into ETFs in 2025 wasn’t from people betting on the price going up. It was Hedge Funds playing a complex arbitrage game.
Funds were buying spot Bitcoin ETFs and selling futures to pocket the premium (Funding Rate), which was paying out around 15-20% annualized.
However, sentiment soured due to the liquidity crunch and the October 10th crash (more on that later). This caused futures funding rates to collapse to neutral or even negative.
With the arbitrage no longer making money, billions of dollars in positions had to be closed. The record outflows from ETFs, even without specific bad news, were simply Hedge Funds dumping massive amounts of spot ETFs to exit the trade.
Yield trap and the dollar
The federal government shutdown meant key macro data wasn’t published. Even though the labor market appeared to be cooling, “sticky” inflation readings prevented the Fed from cutting rates aggressively.
The 10-year Treasury yield (US10Y) climbed back towards 4.6%. In that environment, large Pension Funds rebalanced. They sold risky assets to lock in those high, risk-free bond yields.
Plus, high rates mean a strong dollar. Since Bitcoin is priced in dollars, a mathematically stronger denominator naturally pushes the asset price down.
Supply side shock
After the 2024 halving and with network difficulty hitting all-time highs, the drop below $90,000 wiped out profit margins for a lot of miners (especially those paying more than $0.06 per kWh).
To avoid bankruptcy, miners had to sell off the Bitcoin reserves they built up over the years just to pay for electricity and hardware leases.
The October 10th flash crash
The US-China economic war and threats of new tariffs on November 1st spiked volatility. In the chaos, Binance’s internal pricing engine mispriced USDe collateral (Ethena’s synthetic stablecoin) and incorrectly flagged accounts as insolvent.
This triggered instant liquidations. Top Market Makers had safety triggers in place that immediately pulled their orders from the books. When the liquidation engine tried to dump billions in collateral to cover losses, there were zero bids. The Market Makers had ghosted the market. With no liquidity to absorb the fall, the crash contaminated the broader crypto space, leading to the crypto heatmap going red and prices plummeting.
Prices stabilized a few hours later, but the damage had already been done. Market Makers took a massive hit and still haven’t fully recovered. The problem is that crypto doesn’t have the same rules as traditional finance; no regulations are stopping Market Makers from walking away when things get worse.
Bottom line
Bitcoin has found a floor, bouncing 3.5% today. We’ll have to wait and see if buyers can defend this level.
Either way, the crash over the last two months is a critical case study. Understanding what happened here is key to making wise decisions in 2026.