Bitcoin tumbled below $90,000 early Wednesday, then slipped further after Trump's Davos remarks and the European Parliament's freeze on EU-US trade deal approval. BTC broke below $88,000, while ETH dropped under $2,900. Daily candles closed red, with sentiment turning icy. Analysts flag potential additional pressure around the Bank of Japan rate decision on Friday.
Liquidation Dominance Flip Reveals Leverage Dynamics
From the Bitcoin futures liquidation dominance chart, a clear pattern shift emerged over recent weeks. Periods dominated by short liquidations (green) coincided with upward price moves, indicating the rally was largely fueled by forced short squeezes rather than genuine spot demand. Such squeeze-driven momentum tends to run hot then fade fast once liquidation pressure subsides. Conversely, clusters of long liquidations (red) align with pullbacks or consolidation, as the market washes out over-leveraged longs. While painful in the short term, these events structurally reduce excess leverage and reset funding rates, setting up for more stable conditions later.
Overall, Bitcoin is operating in a leverage-driven regime where 'liquidation' acts as the primary volatility catalyst. Until extreme liquidation patterns ease and spot flows regain control, price action will remain reactive to positional imbalances, prone to sharp swings but lacking sustained directional conviction.