Crypto Drop Triggers Massive Wave of Liquidations Amid Fed Policy Uncertainty

Recent market volatility has sent shockwaves through the cryptocurrency space, with the crypto drop wiping out over $700 million in long positions across major digital assets. Bitcoin’s struggle to maintain levels above $100,000, coupled with shifting expectations around Federal Reserve policy, has sparked a cascade of forced liquidations that exposed the risks lurking beneath the surface of leveraged trading positions.

Market Shock: Bitcoin and Major Altcoins Face Sharp Declines

The crypto drop unfolded across virtually all major cryptocurrency holdings. Bitcoin retreated below the psychologically significant $100,000 level during late U.S. trading hours, though it staged a modest recovery during early Asian sessions. Current data shows BTC trading around $68,210, up 3.64% over the past 24 hours—a far cry from the dramatic losses that triggered the broader market sell-off.

The altcoin sector bore even steeper losses during the initial downturn. XRP, DOGE, and Solana’s SOL experienced the most significant pressure, with these assets declining sharply before stabilizing. Today’s data reveals a different picture: XRP has recovered to +4.34% daily, DOGE sits at $0.10 with +8.32% gains, and SOL shows +7.09% over 24 hours. Ethereum and BNB also felt the pressure, slipping 2.5% at their lows, while Chainlink suffered the steepest single-day loss in the group.

Powell’s Bitcoin Comments Spark Risk-Off Sentiment

The primary catalyst for the crypto drop emerged from Federal Reserve Chair Jerome Powell’s post-FOMC press conference remarks. When questioned about President-elect Donald Trump’s campaign promises to establish a U.S. strategic Bitcoin reserve—where the government would hold 100% of all Bitcoin currently held or acquired in the future—Powell provided a sobering response.

“We are not allowed to own Bitcoin under current regulations,” Powell stated, noting that any such change would require Congressional action. He added, “That’s the kind of thing that Congress should consider, but we are not looking for a law change.”

This statement proved pivotal. Market observers noted that Trump’s strategic reserve pledge had been a key driver of positive sentiment throughout late 2025 and into 2026. Powell’s implicit dismissal of immediate Fed participation in Bitcoin accumulation appeared to deflate expectations of institutional-level demand support. The Fed chair’s acknowledgment that inflation would remain “a continuing problem throughout the next year” also tempered enthusiasm around the previously anticipated interest rate cuts, further dampening sentiment in risk assets.

Understanding the $700M Liquidation Cascade

The crypto drop’s secondary and more severe impact came through the liquidation mechanism. A liquidation occurs when an exchange forcibly closes a trader’s leveraged position because the trader cannot meet margin requirements—the collateral needed to maintain the position at current prices. When prices drop sharply, overleveraged traders face forced sell orders that accelerate downward price pressure, creating a self-reinforcing cycle.

The $700 million in liquidated longs represented an unusual pattern: smaller altcoins and meme tokens recorded proportionally higher losses than Bitcoin or Ethereum futures, suggesting that retail traders and smaller accounts bore the brunt of the damage. This dynamic reveals the concentration of leverage among the riskier end of the cryptocurrency market.

Market Participants React: Divided Outlooks Emerge

The crypto drop prompted immediate analysis from market professionals, with opinions diverging sharply on forward implications. Nick Ruck, director at LVRG Research, told CoinDesk that “crypto markets may have entered a peak if a U.S. Bitcoin strategic reserve is no longer in play, as this promise helped to fuel the recent months’ rally to new all-time highs.”

However, Singapore-based QCP Capital took a contrarian stance. The firm advised traders not to panic: “Don’t get shaken out of your positions if a drop occurs. With 2025 poised to be a potentially bullish year for crypto, particularly with Trump in office, staying the course may prove beneficial.”

This split reflects a broader market question: Is the crypto drop a mere technical correction within a larger bull trend, or does it signal exhaustion of the Trump-driven rally that pushed Bitcoin to record heights?

Technical Rebound and Resistance Levels to Watch

Interestingly, Bitcoin mounted a sharp short squeeze following the initial crypto drop, bouncing back toward $69,000 as traders covering bearish positions created rapid upside momentum. This technical rebound rippled through the broader market, lifting altcoins including ETH, SOL, DOGE, and ADA, along with crypto-related stocks such as Coinbase, Circle, and others.

LMAX Group’s Joel Kruger cautioned that this rebound remains fragile, warning that “the bounce appears driven by bearish positioning and thin liquidity rather than clear fundamental catalysts.” In other words, the recovery represents a technical oversold bounce rather than renewed conviction among buyers.

For a sustained recovery to signal a genuine structural uptrend, traders point to key resistance levels at $72,000 and $78,000 for Bitcoin. A break above these thresholds on a consistent basis would suggest that the crypto drop has completed and a new leg higher is underway. Currently, BTC sits below both targets, leaving the technical picture ambiguous.

The Broader Outlook for Crypto Markets

The crypto drop illustrated how quickly sentiment can shift in cryptocurrency markets, particularly when policy expectations change. While Fed rate cuts were largely expected and would normally be bullish for risk assets, Powell’s framing of persistent inflation concerns and regulatory skepticism toward Bitcoin acquisitions offset those benefits in the near term.

Looking ahead, the critical question remains whether the crypto drop represents a healthy pullback in an otherwise bullish environment—as QCP Capital suggests—or the beginning of a deeper correction. The resolution likely hinges on whether Trump’s strategic Bitcoin reserve proposal gains Congressional traction, and whether macroeconomic conditions continue to favor digital assets in 2026.