Bitcoin Plunges to 7-Month Low Amid “Extreme Fear,” Analysts Eye Liquidity Rebound

Bitcoin experienced a significant dip today, briefly falling to $93,000 and touching a near seven-month low. This downturn has plunged market sentiment into a state of “extreme fear.” However, analysts largely view this correction as a temporary squeeze driven by tightening market liquidity, rather than a fundamental deterioration. They anticipate a potential rebound once global liquidity conditions improve.

As of writing, Bitcoin has recovered slightly to $95,664, though it still reflects a 9.9% decline over the past week, according to CoinGecko data. The Crypto Fear & Greed Index has plummeted to 10, firmly placing it in the “extreme fear” zone.

Understanding the Liquidity Squeeze

Derek Lim, Head of Research at Caladan, explained the current market dynamics: “In my view, the core factor dominating the market remains liquidity. The U.S. government shutdown has kept the Treasury General Account (TGA) at elevated levels, leading to a genuine short-term tightening of market liquidity.”

Lim suggests this headwind could reverse in the near term. With the government resuming operations, deferred spending payments are expected to be released, which should help restore market liquidity. He also highlighted Japan’s ongoing discussions about a 17 trillion yen (approximately $110 billion USD) stimulus package, which, if implemented, could further contribute to a global liquidity resurgence.

Expert Insights and Outlook

Edward Carroll, Head of Markets at MHC Digital Group, also warned of accumulating financial pressure, describing a market with “surface calm but underlying tightness”:

“Indicators like U.S. Treasury spreads and the overnight repo market are flashing warning signs, mirroring the market environment from late 2018 to 2019. Cryptocurrencies tend to react faster than traditional markets, so this time it’s another early adjustment.”

This liquidity crunch, coupled with declining expectations for a December rate cut, led to a substantial $1.1 billion outflow from U.S. Bitcoin spot ETFs last week, further exacerbating Bitcoin’s price decline.

Despite the immediate pressures, Carroll remains optimistic about the medium-term outlook for cryptocurrencies. He cites Bitcoin’s strengthening role as a “market-tested digital gold,” the anticipated return of liquidity, and increasing institutional participation as key drivers.

“This correction reflects tightening liquidity and revised rate cut expectations, rather than a fundamental collapse of the crypto market. Once the liquidity cycle reverses, cryptocurrencies are often the first to rebound, as seen after every major policy shift over the past decade.”

Technical Analysis and Future Support

Rachael Lucas, an analyst at BTC Markets, noted that Bitcoin is currently testing the $94,000 support level, with the next critical defense line situated in the $88,000 to $91,000 range.

“Technically speaking, this already meets the definition of ‘entering a bear market.’ However, it’s crucial to consider the broader environment – Bitcoin also saw a 55% pullback in the previous cycle before surging to its all-time high in November 2021.”

She added that the current environment differs significantly: the U.S. government has reopened, a rate-cutting cycle is on the horizon, and the Federal Reserve (Fed) is expected to conclude quantitative tightening (QT) in December. “Therefore, this downturn appears more like a fluctuation towards the end of a trend,” Lucas concluded.