Bitcoin experienced exceptionally high volatility on December 17, when the price rose over 3,000 dollars within an hour and quickly reversed toward 86,000 dollars.
The sharp price movement was not due to significant news. Market data shows that the underlying factors behind the move were leverage, positions, and fragile liquidity situations.
The short squeeze pushed Bitcoin higher.
The price rally began as Bitcoin approached the 90,000 dollar level, which is a significant psychological and technical resistance level.
Liquidation data reveals that heavily leveraged short positions were tightly positioned just above this level. When the price rose higher, short positions had to close their positions. Closing shorts signifies buying Bitcoin, which further increased the price.
About 120 million dollars' worth of short positions were liquidated during the upward spike. This caused a classic short squeeze phenomenon where forced buying accelerated the price increase more than normal spot demand would justify.
At this stage, the move appeared strong. However, the underlying structure was weak.
The price rally turned into a long liquidation chain.
When Bitcoin briefly exceeded 90,000 dollars, new traders entered the market aiming for a continuation of the rise.
Some of these traders opened leveraged long positions, trusting in the durability of the breakthrough. However, the rally lacked supporting spot buying and quickly stalled.
As the price began to fall, these long positions became vulnerable. When key support levels failed, exchanges automatically liquidated these positions. Over 200 million dollars in long liquidations followed, pushing the markets over.
This second wave explains why the drop was faster and deeper than the initial rise.
Within a few hours, Bitcoin had dropped back toward 86,000 dollars, and most of the rise had been wiped out.
Positioning data shows a fragile market setup.
Traders' position data from Binance and OKX helps to understand why the move was so drastic.
At Binance, the number of major trader accounts on the long side sharply increased just before the price spike. However, the position size data indicated lower confidence – many were long, but the sizes of the positions were small.
At OKX, position-based relationships changed significantly after the volatility. This indicates that larger traders rapidly adjusted their positions – buying the dip or modifying their hedging measures as liquidations occurred.
This combination – over-leveraged positioning, fluctuating certainty, and high leverage – makes the market unpredictable, allowing for sharp moves in either direction without warning.
Blockchain data indicated that market makers like Wintermute were transferring Bitcoin between exchanges during periods of volatility. The transfers coincided with price fluctuations but do not prove market manipulation.
Market makers regularly balance their inventories in stressful situations. Deposits into exchanges may relate to hedging, margin management, or ensuring liquidity, and do not necessarily imply selling due to price crashes.
It is important to note that the entire move can be explained by known market mechanisms: liquidation clusters, leverage, and thin order books. There is no unified evidence of manipulation.
What does this mean for Bitcoin going forward?
This period highlights a significant risk in the current Bitcoin market.
The amount of leverage is still high. Liquidity thins rapidly during quick movements. As the price approaches critical levels, forced liquidations can dominate price development.
The fundamental factors of Bitcoin did not change during those hours. The volatility reflected the vulnerability of the market structure, not a change in long-term value.
Until leverage returns to more normal levels and market positions stabilize, similarly strong moves remain possible. In this case, the rally and crash in Bitcoin's price were not due to news.
The move was due to leveraged trading turning the price against itself.
