Bitcoin’s recent price drops are significantly influenced by margin liquidations, which occur when leveraged traders are forced to close their positions due to insufficient collateral as prices move against them. For example, a sharp decline from around $112,000 to below $106,000 in early November 2025 triggered over $1.27 billion in leveraged futures liquidations, with long traders—those betting on price increases—accounting for nearly 90% of these liquidations, wiping out approximately $1.14 billion in bullish bets[1]. This pattern of forced selling can accelerate price declines because liquidations add selling pressure to the market.
Margin liquidations happen automatically on crypto futures exchanges when a trader’s margin falls below the maintenance requirement. The platform closes the position by selling it into the market to cover losses. This process can create a feedback loop: as prices fall, more long positions get liquidated, pushing prices down further and triggering additional liquidations. This cascade effect was evident in October 2025 during the largest liquidation event in crypto history, where over $19.35 billion was wiped out in 24 hours following a geopolitical shock—a surprise tariff announcement by former U.S. President Donald Trump. Bitcoin’s price plunged from above $122,000 to near $104,000, with over $16 billion in long positions force-liquidated[2]. Such events highlight how external shocks can expose vulnerabilities in an over-leveraged market.
The dynamics of margin liquidations are closely tied to leverage, collateral quality, and market flows. Changes in collateral haircuts—reductions in the value of assets used as margin—can reduce effective leverage and increase liquidation risk even without a price move. Additionally, flows into and out of Bitcoin exchange-traded products (ETPs) and ETFs influence dealer hedging and spot market liquidity, which in turn affect price stability and liquidation zones. For instance, shifts in ETF inflows and outflows in October 2025 altered dealer hedge requirements and contributed to price volatility around liquidation clusters[3].
Long-term holders, often called “OG Bitcoin whales,” who have held Bitcoin for many years, have also influenced recent price action. Since mid-2024, these whales have sold over 1 million BTC, which has pressured prices despite their historically strong holding patterns. Their selling coincided with leverage flushes and failed price retests of key resistance levels near $117,000 and $112,000, signaling weak momentum and encouraging traders to reduce risk. Analysts warn that if Bitcoin falls below critical support levels around $93,000, forced liquidations could cascade further, potentially driving prices down to the $70,000 range without any new negative news, purely due to margin call chains[4].
The scale of these liquidation events is enormous and can overwhelm market liquidity. For example, in the October 2025 liquidation event, nearly $20 billion in positions were unwound within hours, causing a liquidity crunch that exacerbated price declines. This shows how margin calls and forced liquidations can dominate market moves in the short term, especially in a market environment with high leverage and concentrated positions[5].
In summary, Bitcoin’s price drops are closely linked to margin liquidations driven by leveraged trading. When prices fall sharply, long positions are liquidated en masse, adding selling pressure and potentially triggering further declines. External shocks, changes in collateral valuation, ETF flows, and selling by large holders all interact with leverage dynamics to influence these liquidation cascades. Understanding these mechanisms is crucial for grasping why Bitcoin can experience sudden and severe price drops even in the absence of new fundamental news.