For leveraged traders, the adjustments in December were by no means a "healthy drop." It was a massive clearing shockwave that exposed the vulnerabilities in the underlying derivatives structure. In less than 24 hours, long positions in cryptocurrencies worth over $400 million to $440 million were liquidated, with Bitcoin and Ethereum being hit the hardest. What could have been a controllable drop evolved into a chain sell-off, triggering the clearing engines of all major trading platforms simultaneously.
Data behind the clearing
The reports from the clearing aggregator and exchanges show:
Over a specific 24-hour period, the cumulative liquidation amount in cryptocurrencies was approximately $400 million to $440 million, with over 80% being long positions.
Prior to Bitcoin breaking below key price levels, approximately 250 million leveraged positions were forcibly liquidated within 4 hours.
At the HTX exchange, a long position of approximately $34 million in BTC/USDT became the largest forced liquidation in a single transaction.
By asset classification:
Bitcoin had over 100 million positions forcibly liquidated on its most active trading day.
The Ethereum market experienced tens of millions of dollars in forced liquidations of long positions as the price broke through the $3000 midpoint and then fell back to $3000.
High beta altcoins and meme tokens caused further shocks, with leveraged trading triggering multiple margin call notifications for SOL, XRP, and other assets.
By trading platform classification:
Hyperliquid exchange has the highest number of forced liquidations, approximately 374 million positions, making it one of the trades with the most forced liquidations, of which 98% are long positions.
Exchanges like ByBit and Binance also gained fame as they forced the liquidation of billions of transactions during the sell-off.
Why is this sell-off so severe?
At first glance, the triggering factors seem simple: disappointing macroeconomic conditions and technical setbacks. Bitcoin failed to maintain its upward momentum above $80,000, breaking below the gains triggered by the CPI index, and falling below critical spot and derivatives price levels. However, behind the market structure, these factors led to more severe volatility:
It can be seen that high leverage
Funding rates and open interest data show that many traders are heavily long, anticipating a dovish shift in the market or 'good enough' data to push prices back to $100,000. However, once market momentum wanes, these traders end up being hurt by leverage.
After a strong year, liquidity is trending towards weakness.
"As 2025 progresses, the depth of order books (in USD) at most exchanges has declined, while nominal prices have risen. If Bitcoin's current price is between $80,000 and $100,000, then if order book depth increases, the number of buy and sell orders consumed during the liquidation process will also increase."
Synchronized liquidation engines
Due to multiple platforms relying on the same set of risk parameters, once prices break certain key support levels, the liquidation engines of multiple exchanges can nearly all activate simultaneously. This means that any movement of Bitcoin prices breaking key support levels could trigger severe sell-offs across multiple platforms.
The result is: normal post-event pullbacks evolve into rapid, instinctive sell-offs, and this sell-off is exacerbated by mechanical rather than subjective selling decisions.
Impact on Bitcoin, Ethereum, and other cryptocurrencies
From a technical perspective, the wave of liquidations intensified the already evident downtrend:
Bitcoin rapidly fell below the $90,000 mark, subsequently dropping to the range of $88,000 to $86,000, offsetting the boost from CPI inflation, and ultimately closing around $80,000.
Ethereum's price had already lagged behind Bitcoin, breaking below the psychological barrier of $3000 and hovering around the $2000 high, exacerbating losses from L2 and DeFi-related trades.
Other cryptocurrencies have been more severely affected, with some larger market cap cryptocurrencies underperforming Bitcoin, while major sectors such as DeFi tokens, concept coins, and AI tokens have experienced significant declines.
In the DeFi market, the value of collateral occupies a significant share, and this sudden drop has transmitted pressure to the lending and liquidity staking sectors:
Total locked value (TVO) has been declining since surpassing $170 billion in 2025, continuing to retreat as prices and risk appetites decrease.
Liquidations occurring in on-chain currency markets have added new selling pressure, affecting assets used as collateral, such as ETH and SOL.
Impact on the derivatives market
However, this shift
"The liquidation wave in December has several structural impacts on the future direction of the market:"
Leverage will readjust:
The open interest has decreased, especially on high-leverage platforms. This lowers the likelihood of similar scale chain reactions from bulls in the short term, but also dampens the momentum that could trigger explosive squeezes.
Funds and basis have normalized. This means
Although the outflow rate had previously been high and strongly positive, it has eased or turned negative at local lows, indicating that the market is shifting from frenzied long positions to a more balanced or cautious stance.
Traders are switching between different platforms:
The market share of non-KYC derivatives and new perpetual DEXs has continued to grow in 2025, and such events will only accelerate this shift as users become dissatisfied with the risk models on certain CEXs. This cyclical pattern is quite common in risk management: leverage rises during strong trends, followed by sell-offs due to severe volatility, then reestablishing from clearer bottoms. The takeaway for traders and builders: for active participants, this event reaffirms some practical considerations: the relative importance of macro timing.
Macro traders' liquidations typically peak around major macro events, such as CPI data releases, key federal decisions, or headlines related to forward guidance. Without specific stop-loss points, having oversized positions and high leverage during these events is essentially counter to the macro environment and order flow. Leverage is a tool, but it is not a strategy in itself. Many liquidated long positions were not fundamentally wrong (Bitcoin still benefits from the launch of ETFs, the rise of digital gold, etc.), but rather over-leveraged in timing. Reducing leverage and setting larger stop-loss points could save many such trades. Liquidity and venue choice are crucial.
The negative impact of liquidation losses typically emerges in areas with low liquidity and high leverage. Large traders may wish to place larger orders through the most liquid BTC/ETH markets or breakout trends. In terms of protocol design and risk analysis, this event has prompted designers and risk analysis teams to pay attention to the necessity of regularly adjusting margin parameters and collateral discounts, especially when nominal asset prices exceed regular ranges. Monitoring cross-exchange pressure: liquidations on centralized exchanges may directly affect the prices of on-chain oracles, and if buffer sizes are too small, it could lead to excessive DeFi liquidations. Have the worst times passed? Based on historical experience, large-scale liquidations often occur near local turning points, which typically correspond to the strongest trading opportunities, so the events in December this year are no exception: it was a prolonged capitulation sell-off, followed by declining open interest and more two-way volatility, etc. However, whether this represents a permanent bottom or the beginning of a larger downtrend depends on several factors: Bitcoin's reaction at important price levels near spot support (around $80,000 and subsequently near $70,000 to $75,000); whether ETF fund flows stabilize or continue to decline; the next round of macroeconomic data, especially unexpected results regarding inflation and economic growth, which could prompt adjustments to the Fed's strategy. From a structural perspective, the current market structure is clearer than before the crash, with less unidirectional leverage effect. This is conducive to forming more sustainable trends, whether upward or downward, but it does not mean that the market can achieve a rapid V-shaped recovery without risk. As it stands, the December liquidation shockwave is just a textbook example, as the fact is that in the derivatives-based cryptocurrency market, trading is not just conducted by buyers and sellers—it is also influenced by invisible factors such as liquidation engines, risk engines, and leverage, which can turn market adjustments into tsunamis within hours. $$BTC
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