On the evening of January 29, 2026, in the UTC+8 time zone, the cryptocurrency market experienced a systemic correction led by declines in BTC and ETH, triggering a significant chain reaction of leveraged liquidations. On that day, BTC fell approximately 5% within the day, briefly dropping below the $85,000 threshold; ETH saw a 24-hour decline of about 6.8%–7.0%, falling below $2,800. According to multiple data sources, approximately $575 million–$665 million in contracts were liquidated across the network within 24 hours, with long positions being the absolute majority. Concurrently, the Nasdaq fell about 2%, the S&P 500 dropped over 1%, and the Dow Jones decreased by 0.5%. Coupled with expectations of military exercises in the Strait of Hormuz in early February, cross-market risk sentiment amplified volatility. This article will outline that this flash crash is more akin to a liquidity and leverage structure event rather than a fundamental reversal of cryptocurrency assets, following the main thread of "high leverage, long squeeze, and weak liquidity."
Key Levels of BTC and ETH Breached
● Price Behavior Characteristics: On January 29, BTC fell about 5% within the day and breached the $85,000 mark, with both technical and psychological support quickly pierced; ETH dropped approximately 6.8%–7.0% within 24 hours and fell below $2,800. The two major cryptocurrencies simultaneously broke through significant integer levels in a short time, forming a typical "waterfall" correction structure rather than a gradual decline.
● Technical Level Breach and Passive Selling: The $85,000 and $2,800 levels are not only market-focused integer thresholds but also areas of dense entry and stop-loss for many leveraged long positions. As prices quickly fell below these levels, these technical points triggered programmatic stop-losses, passive liquidations after margin calls failed, and forced selling, leading to concentrated selling pressure in a short time, amplifying what was originally not an extreme percentage decline.
● Rapid Correction Rather Than Trend Reversal: In terms of rhythm, this correction was characterized by a sharp drop in a single evening followed by stabilization the next day, and has not yet formed a daily-level sustained breakdown trend structure. Coupled with the fact that BTC and ETH had been in a medium to long-term upward channel for several weeks prior, the current situation can be seen more as a sharp pullback in a strong market, and it remains to be seen whether it can stabilize near the medium to long-term moving averages and restore volume to confirm whether it evolves into a trend reversal.
● Data Boundaries and Interpretative Restraint: It is important to emphasize that the precise lowest price levels for BTC and ETH during the day have not been fully confirmed across multiple data sources; current market discussions mainly focus on ranges and approximate declines. In the absence of high-confidence tick-level data, viewing a certain "extreme low point" as a repeatedly validated strong support carries the risk of over-interpretation, and short-term participants should still judge based on ranges and structures.
$500 Million Liquidation Wave and 180,000 Accounts Exiting
● Imbalance in Liquidation Scale and Structure: Statistics show that within 24 hours from January 29 to 30, the total liquidation scale in the contract market was approximately $575 million–$665 million, with over 90% of liquidations being long positions, reflecting a highly unidirectional leveraged structural imbalance. This indicates that the correction primarily involved squeezing overly optimistic consensus long positions rather than a normal turnover under balanced long and short forces.
● Breadth of Leverage Usage: CoinGlass data indicates that 180,000–190,000 accounts were liquidated within 24 hours, including not only large accounts but also a significant number of medium and small accounts. This figure suggests that during this round of market ascent, leverage tools were used extremely widely, and once prices retreated to key ranges, the forced liquidation mechanisms would simultaneously activate across accounts of different sizes, amplifying volatility.
● Causes of "Small Decline, Severe Liquidation": In terms of absolute decline, BTC's approximately 5% and ETH's approximately 7% pullback are not historically rare extreme situations, but from the perspective of the heat map showing "high leverage longs being concentratedly wiped out at key price levels," it can be seen that a large number of long positions were densely distributed near $85,000 and $2,800. Once prices broke down, the liquidation chain spread in a "catalytic" manner, leading to liquidation amounts far exceeding the severity intuitively reflected by the price percentage.
● Liquidity Drain and Chain Reaction: At key levels, market making and order book depth had already thinned after a unilateral rise, and when a large number of forced liquidation orders were dumped into the market in a short time, liquidity was rapidly drained, significantly exacerbating slippage on buy orders. The matching depth on some platforms was penetrated, triggering further liquidations, forming a negative feedback loop of "price drop—liquidation trigger—liquidity decrease—price drop again," causing selling pressure that could have been digested through normal intraday fluctuations to be concentrated and released in a very short time.
Cross-Market Resonance Under Wall Street and Strait Clouds
● U.S. Stocks Drop in Sync, Cooling Risk Appetite: On the same trading day, the Nasdaq index fell about 2%, the S&P 500 index dropped over 1%, and the Dow Jones index decreased by about 0.5%, with all three major U.S. indices collectively correcting, sending a unified "cooling signal" for global risk asset pricing. For the high-beta asset cryptocurrency market, this external contraction of risk appetite combined with an internal high-leverage structure makes corrections more likely to evolve into "liquidation cascades."
● Concentrated Selling Pressure on Crypto-Related Stocks: Crypto-related stocks in the traditional market also faced heavy selling, with MSTR dropping 6.88% and COIN falling 4.37%, far exceeding the broader market declines. As representatives of the "equity" of BTC and trading volume, the simultaneous weakness of these assets further reinforced the re-pricing of overall risk in the crypto sector by institutions and quantitative funds, making it difficult for the crypto spot and derivatives markets to remain insulated.
● Premium from Geopolitical Military Exercises: Meanwhile, the market noted the announcement of military exercises in the Strait of Hormuz on February 1–2 and their potential impact on shipping activities. As an important energy and trade corridor, related news was interpreted in risk assets as a signal of rising geopolitical uncertainty, which, while not directly impacting the fundamentals of crypto assets, marginally suppressed global risk appetite.
● Rotation Pressure Between Safe-Haven and Risk Assets: On a macro level, analyst Jeremy Boulton pointed out that "the dollar has shown significant resilience, but the 27% increase in gold this month contains reversal risks." On one hand, the strong performance of the dollar and the robust rise in gold reflect an increased relative attractiveness of safe-haven assets; on the other hand, when safe-haven assets have already accumulated considerable gains, risk assets are more likely to be short-term reduced in allocation during periods of weak sentiment, forming a rotation pressure chain of "crowded safe-haven—risk sell-off."
Whale Liquidation and Celebrity Account Washout
● Whale Account Faces $53 Million Daily Unrealized Loss: In this round of correction, a certain whale account that had previously attracted attention due to "shorting insider information after the 10·11 flash crash" was tracked by the market, showing a daily unrealized loss of about $53 million. This scale of loss indicates that even in the context of previously profitable short strategies, high leverage and reverse volatility can also erode substantial equity in a very short time, reflecting the vulnerability of large funds in high-volatility environments.
● Amplifying Effect of Celebrity Account's $2 Million Loss: At the same time, the case of well-known investor Huang Licheng (Machi) losing about $2 million on the Hyperliquid platform was widely circulated, becoming one of the focal points of discussion on social media. For ordinary investors, such "celebrity liquidation" events have a strong demonstrative and warning effect, further amplifying the market's perception of leverage risks and chasing behavior, making it easier to trigger emotional contraction and self-examination in the short term.
● Impact of Single Large Liquidation on Liquidity: According to public data, during this volatility, the Hyperliquid platform's BTC-USD contract saw a maximum single liquidation of $31.64 million. Such a large single liquidation order during a period of limited depth would significantly impact the order book, directly lowering the average transaction price, and further triggering stop-losses and forced liquidations at surrounding price levels, causing the local market to "gap up" in a very short time. This also explains why the local order book exhibited abnormal slippage and unusual candlestick patterns.
● Chip Redistribution and Retail Investor Sentiment: When whale and celebrity accounts face concentrated setbacks in a short period, it signifies that high-leverage chips are passively exiting, creating space for medium to long-term low-leverage funds; on the other hand, it also creates a psychological impact of "no one is spared" among retail investors, potentially suppressing the willingness to chase prices and amplifying fear of corrections in the short term. In the medium to long term, such emotional shocks are often accompanied by chips migrating from high-leverage speculators to relatively stable participants, laying the foundation for a smoother upward trend thereafter.
Risk Repricing After Clearing High-Leverage Longs
● Leverage Clearing and Volatility Convergence: From the perspective of capital structure, in this round of correction, long leverage was concentratedly washed out at key price levels, pulling the overall market leverage ratio back from high levels. Historical experience shows that after experiencing a round of high-leverage liquidation, new incoming funds tend to be more cautious in the short term, and the risk appetite of existing positions decreases, thereby promoting a phase of convergence in market volatility, creating conditions for prices to rebuild balance within a narrower range.
● Potential Support Zones and Technical Signal Boundaries: Currently, some technical traders in the market are beginning to discuss the possibility of forming potential support zones for BTC below $85,000 and for ETH below $2,800. However, it should be emphasized that the relevant support is still in the "to be verified" stage, lacking multiple retests and volume confirmation, and viewing it as already "ironclad support" carries obvious risks. Investors should be cautious to distinguish between "market consensus expectations" and "hard facts that have been price-validated" when referencing these technical viewpoints.
● Repair Path Under Non-Deteriorating Macroeconomic and Geopolitical Conditions: If in the coming weeks geopolitical and macro risks do not significantly escalate, U.S. stocks and crypto assets are expected to enter a phase of linked repair after a period of excessive declines. On one hand, the stabilization of U.S. stocks as a global risk asset pricing anchor will provide external support for the risk premium of crypto assets; on the other hand, after the internal leverage clearing in crypto, if spot buying and medium to long-term funds gradually flow back, prices may have the opportunity to repair technical structures amid fluctuations, returning to a mid-term trajectory that aligns with macro liquidity.
● Key Sentiment Indicators: For investors, it is essential to focus on several indicators moving forward: first, whether the overall liquidation scale continues to cool, to assess whether forced liquidation pressure is easing; second, the rhythm and direction of capital re-entering the market, especially the net inflow situation of spot and low-leverage products; third, the recovery level of leverage usage and term structure in the derivatives market, to evaluate whether speculative sentiment is warming too quickly, potentially laying the groundwork for a new round of liquidation.
From Bloodbath to Calm: The Starting Point of the Next Wave
The flash crash on January 29 resembles more of a liquidity event under the resonance of macro panic, high leverage, and key price levels, rather than an independent incident triggered by a single piece of negative news. The correction in U.S. stocks, expectations of geopolitical military exercises, and the strengthening of safe-haven assets collectively formed external emotional pressure; internally, within a structure of high-leverage longs clustered together, the breach of technical thresholds triggered a chain reaction of forced liquidations and deep withdrawals.
This event reiterates that ignoring leverage ratios and liquidation dense areas is a structural risk. Whether for institutions or individuals, managing positions and margins more conservatively in high-volatility assets, avoiding strategies based on the assumption of "there will always be a higher buyer," is a prerequisite for navigating through cycles. Properly controlling leverage multiples, diversifying entry levels, and reserving sufficient redundant margin should become the baseline that high-frequency and medium to long-term participants adhere to.
From a medium-term perspective, if macroeconomic and geopolitical situations do not significantly deteriorate, this round of correction is expected to be proven as a deep reshuffling and leverage clearing on the path of long-term growth in the crypto market. The passive exit of high-leverage chips has created space for healthier upward movements, while chips migrating towards low-leverage and long-term funds during panic often serve as a necessary prelude to a new phase of market trends.
Moving forward, market participants need to continuously track several main lines: changes in liquidation scale and frequency, relative strength of U.S. stocks and gold, and the ongoing impact of policies and geopolitical news on global risk appetite. Only when forced liquidation pressure significantly eases, risk assets regain external macro support, and the upward momentum of safe-haven assets slows down or even experiences high-level fluctuations, can a new trend with foundational support potentially brew in calmness.
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