Analysts Point to Leverage and Liquidity as Bitcoin Falls 26% From Peak
Key takeaways:
- Bitcoin is down over 26% from its peak, wiping out 2025 gains.
- Superficial causes like the government shutdown and AI bubble fears do not fully explain the decline.
- Analysts point instead to high leverage, tight liquidity, and Bitcoin’s market cycles as the real drivers.
Bitcoin has declined more than 26% since its peak in October, a move that has erased its price gains for the year.
External factors, such as concerns over a U.S. government shutdown and volatility in AI-related assets, have been widely cited as contributors to this downturn.
However, analysis of market structure suggests internal factors may have played a more central role. These include the unwinding of excessive leverage, a contraction in market liquidity, and the influence of recurring cyclical patterns.
Continued Decline: Bitcoin Sheds 26% Despite Market Optimism
After reaching an all-time high of $125,000 on October 5, Bitcoin has trended lower, with a recent bottom established near $88,914.
Nonetheless, many analysts view this as temporary relief within a broader corrective phase. The 2025 gains have now been entirely negated.
Two dominant theories have been circulated to explain the downturn.
The first was the 43-day U.S. government shutdown, the longest in history. It was anticipated that its resolution would accelerate regulatory progress and, coupled with a weaker U.S. dollar, lift off demand for Bitcoin as a hedge.
However, the price continued to decline after the shutdown ended, challenging this assumption.
The second theory involved a potential rotation out of crypto and into AI stocks, driven by concerns over an overvalued tech sector. This narrative has been weakened by strong financial data.
Leading chipmaker Nvidia reported positive quarterly results, with revenue soaring 62% year-over-year to $57 billion.
Such fundamental strength contradicts the notion of an imminent AI bubble burst, suggesting its direct impact on Bitcoin’s price may be overstated.
Analysts Push Back: Liquidity, Leverage, and Cycles May Be the Real Drivers
Challenging the mainstream narratives, on-chain analysts point to more technical factors. In a recent analysis, Rational Root identified “high levels of futures leverage” as a key culprit, arguing that a market deleveraging event has amplified the price drop.
The analyst called Bitcoin a “clean slate” following its recent all-time high, adding that the cryptocurency now presents an opportunity for more upside, especially for institutions.
PlanC, another known Bitcoin analyst, also pointed to Nvidia’s recent earnings report as proof that Bitcoin’s downturn isn’t related to concerns over AI’s financial viability.
Instead, the analyst pointed to delayed global liquidity and the fabled 4-year Bitcoin price cycle.
Jack Mallers, chief executive of crypto payments and investment company Zap, has corroborated the money supply point, claiming in an X post that what we’re seeing is just Bitcoin’s sensitivity to liquidity.
As for the four-year cycle argument, growing institutional crypto adoption could break this cycle.
Jimmy Aki
Drawing from his background in economics, Jimmy has monitored blockchain development for years, firmly believing in its power to democratise finance. Beyond offering commentary on the latest crypto developments, he also spends his time analysing open-source codes of promising projects on GitHub. Jimmy holds Bitcoin and Ethereum.
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