In mid-August 2025, Bitcoin underwent a dramatic repricing, dropping nearly 10% within just a few hours between 4 PM and 6 PM Eastern Time on August 17–18. According to Coinbase data, BTC fell 8.8% from its opening price on August 17, plunging to a low of $25,244. This sharp decline pushed BTCUSD below both the 200-day and 200-week moving averages—key long-term technical indicators often watched by institutional traders.
Concurrently, the perpetual futures market saw a reduction of approximately $2.75 billion in open interest, marking the largest Bitcoin deleveraging event since the FTX collapse in November 2022. As volatility spiked, speculation ran rampant about the root causes: Was it macroeconomic fears? Regulatory uncertainty? Or simply an over-leveraged market correcting itself?
This article dives deep into on-chain metrics, derivatives data, and macro trends to uncover what really drove the drop—and what it means for Bitcoin’s near-term trajectory.
Market Sentiment and External Catalysts
Before examining technical and on-chain data, it's important to consider the broader market environment during this period.
James Butterfill, Research Director at CoinShares, pointed to several macro-level concerns on social media that may have contributed to weakening sentiment:
- Delayed expectations for a spot Bitcoin ETF approval by the U.S. Securities and Exchange Commission (SEC), which dampened bullish momentum.
- Growing concerns over China’s economic slowdown, with potential deflationary ripple effects across global markets.
- A notable decline in Bitcoin trading volume, reducing market depth and increasing susceptibility to large sell orders.
Additionally, news outlets highlighted two significant developments around the same time:
- The Wall Street Journal reported that SpaceX had written down $373 million worth of Bitcoin on its balance sheet, suggesting possible sales or valuation adjustments.
- Freddie Mac announced that the average 30-year fixed mortgage rate in the U.S. reached 7.09%, the highest level since April 2002—signaling tighter financial conditions that could pressure risk assets like crypto.
While these events likely added to bearish sentiment, they don’t fully explain the speed and severity of the price drop. That answer lies deeper—in the structure of the derivatives market.
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On-Chain Evidence: No Panic Selling, But Massive Liquidations
One of the most telling signs that this wasn't a broad-based sell-off by long-term holders is found in exchange reserve data.
Analysis shows no significant inflow of Bitcoin to major exchanges during or after the crash. If long-term "HODLers" were capitulating, we would expect to see large volumes of BTC being moved onto exchanges—a classic precursor to selling. The absence of such movement suggests that the selling pressure did not originate from holders.
Instead, the culprit was clear in the futures market: massive long liquidations triggered by over-leveraged positions.
Open Interest Collapse Points to Forced Unwinding
Open interest—the total number of outstanding derivative contracts—dropped sharply during the event. This decline indicates that traders were forced to close positions, not exiting voluntarily.
On August 17 alone, over 5,694 long contracts were liquidated, making it the largest single-day long liquidation event in 2025 so far. For context, the last time liquidations reached this scale was on November 9, 2024, when Bitcoin dropped 27% amid the FTX fallout.
Meanwhile, short liquidations remained minimal—confirming that bears were not caught off guard. This imbalance reveals a critical truth: the market was overcrowded with leveraged longs, vulnerable to even minor downside moves.
The Mechanics of a Long Squeeze
A long squeeze occurs when falling prices trigger automated margin calls on leveraged long positions. As these positions are forcibly closed, they create additional downward pressure, prompting more liquidations in a cascading effect.
Here’s how it unfolded:
- A small initial price drop (possibly due to low liquidity or news-driven selling) breached key support levels.
- Automated stop-losses and margin calls activated across highly leveraged long positions.
- Exchanges began forcibly closing these trades, executing sell orders at market prices.
- These forced sales accelerated the decline, triggering more liquidations—a self-reinforcing cycle.
This phenomenon explains both the speed and depth of the correction far better than fundamental narratives alone.
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Technical Outlook: Two Scenarios Ahead
From a macro-technical perspective, two potential wave structures are now in play—both rooted in Elliott Wave theory.
Since November 21, 2024, Bitcoin appears to have completed a five-wave bullish impulse. What follows next could be either:
Scenario 1: Three-Wave Corrective Phase (Bullish)
- A classic ABC correction where the current drop is wave A.
- Followed by a rebound (wave B) likely targeting $28,000.
- Then a final pullback (wave C) before resuming upward momentum.
In this case, a bounce above $26,500 would strengthen the bullish case.
Scenario 2: New Five-Wave Bearish Impulse (Bearish)
- The November peak marked the end of a larger bull cycle.
- The current move is wave one of a new five-wave bearish sequence.
- If price breaks below the 0.618 Fibonacci retracement level at $21,500**, it could signal acceleration toward **$11,000—the next major historical support zone.
"The path forward hinges on whether bulls can reclaim $26,500 and build momentum toward $28,000," notes a veteran technical analyst. "Failure to do so increases the odds of deeper correction."
Historical Context: Is August Always Bearish?
Historically, August and September have been challenging months for Bitcoin. Data from past cycles shows increased volatility and tendency for pullbacks during late summer.
Yet context matters. In previous years, BTC entered these months with strong bullish momentum. In 2025, despite the August dip, Bitcoin demonstrated resilience earlier in the year—suggesting underlying strength may persist.
Factors that could shift the balance include:
- Clarity on U.S. regulatory policy
- Institutional adoption trends
- Macroeconomic shifts (e.g., Fed rate decisions)
- Technological upgrades (e.g., Layer-2 scaling)
Frequently Asked Questions (FAQ)
What caused Bitcoin’s sudden drop in August 2025?
The primary driver was a cascade of leveraged long liquidations in the futures market. While macro concerns played a role, the speed and scale of the drop point to derivatives-driven selling rather than widespread holder capitulation.
Were long-term holders selling their Bitcoin?
No. On-chain data shows no significant increase in Bitcoin reserves on exchanges—a strong indicator that long-term investors did not panic-sell during the dip.
How much leverage was involved in the crash?
Open interest dropped by $2.75 billion in a short window, with over 5,694 long contracts liquidated—indicating extremely high leverage concentration before the move.
Is this the start of a new bear market?
Not necessarily. While technical patterns suggest downside risk, especially if $21,500 breaks, current evidence supports a correction within a larger consolidation phase rather than an outright bear reversal.
Can Bitcoin recover soon?
Yes. A rebound toward $28,000 is plausible if short-term sentiment stabilizes and buying pressure returns. Key resistance levels will determine whether this is a temporary bounce or start of renewed bullish momentum.
What should traders watch next?
Key levels:
- Immediate support: $25,000
- Resistance: $26,500 and $28,000
- Critical breakdown level: $21,500 (0.618 Fib)
Also monitor open interest trends and exchange flows for early signals.
Final Thoughts: Structure Over Sentiment
The August 2025 Bitcoin selloff was less about fundamentals and more about market structure—specifically, an overconcentration of leveraged long positions vulnerable to a swift correction.
While external news added pressure, the real story unfolded in the futures markets. With no evidence of HODLer capitulation and strong technical levels still intact, this event may ultimately serve as a healthy deleveraging moment rather than the start of a prolonged downturn.
As always in crypto, volatility is inevitable—but understanding the mechanics behind price moves can turn panic into opportunity.