Key Insights:
- Analyst attributes the ongoing Bitcoin price drop to a surge in long liquidations, not selling on exchanges.
- Bitcoin USD investors show extreme fear, but analysts think it is a sign of future price rallies.
- Bitcoin is back above the average cost basis of the spot ETF, indicating renewed commitment from institutional investors
Some industry leaders have commented on the main reason behind the recent Bitcoin (BTC) price drop to the $85,000 support level. Amid these comments, crypto investors are exhibiting fear as indicated by the Fear & Greed Index.
Also, Bitcoin is back above the spot exchange-traded fund (ETF) cost basis.
Liquidations Impact on Bitcoin Price
CryptoQuant, a well-known onchain data analytical platform, has attributed the BTC price drop to $85,000 to liquidations, rather than spot selling.
The platform released a Bitcoin price chart that showed sharp drops coincided with spikes in long liquidations. According to CryptoQuant, BTC USD traders accumulated so many highly leveraged long positions in futures markets.
These positions are usually common in bull markets when optimism is high, and require maintaining a certain margin. Thus, if the price drops even a little, the position can fall below the required margin, triggering automatic closure by the exchange.
The result is that even a small initial price dip triggers some liquidations. This turns a modest decline into a sharp crash, even without new fundamental bad news.
In the current market dynamics, CryptoQuant views the liquidation as a healthy flush-out of excessive speculation and leverage. However, the platform does not think it is a loss of real demand for Bitcoin.
They believe the market will stabilize once all over-leveraged positions are liquidated. Their expectation is based on the fact that there will be less fragile positioning left to break.
CryptoQuant emphasized that the big open question is whether enough leverage has been cleared for the market to become healthier.
Extreme Fear Dominates the Bitcoin USD Market
CoinGlass, another popular crypto data platform, also commented on the state of the market and investor sentiments.
The platform spotlighted the Crypto Fear and Greed Index, firmly at the extreme fear territory with a reading of 10. This reading reports on the ongoing Bitcoin (BTC) price drops, weakness, and heavy liquidations.
The index is a gauge for the crypto market, primarily focused on BTC, but reflecting broader crypto sentiment.
After the recent sharp Bitcoin USD decline, investor psychology has shifted to panic. People are worried, selling off positions, and avoiding risk, classic signs of fear overriding the market.
In crypto bull cycles, these extreme fear dips have frequently marked local bottoms before rallies resume.
Accordingly, Coinglass has encouraged traders and investors not to panic-sell but to see the dip as a potential setup for accumulation.
As of this writing, BTC price has declined by 4% over the previous day to trade at $86,282. The trading volume, however, rose 23.2% to $46.64 billion, suggesting investors renewed interest.
BTC Price Back Above Spot ETF Cost Basis
Furthermore, CryptoQuant analyst Maartunn noted that Bitcoin is back above the average cost basis of the spot ETF. This is a bullish signal amid the ongoing BTC price correction.
The analyst explained that the cost basis flip suggests institutions are now back in unrealized profit territory overall.
Typically, when the price is below the cost basis, it leads to a higher risk of outflows from the spot Bitcoin ETFs.
In contrast, when the price is above, it means more incentive to hold or buy dips. This is because institutional investors are in the green, and less pressure to sell.
It is also important to note that the BTC ETF market has gained increased investor adoption since launching in 2025. So far, the spot Bitcoin ETFs hold approximately 7.8% of the 21 million Bitcoin USD supply.
ETF analyst Nate Geraci pointed out trends that suggested crypto could go mainstream in 2026.
This projection comes as at least 190 public companies hold BTC in their balance sheets. Their holdings quadrupled in 2025, and was led by Strategy Inc.
Source: https://www.thecoinrepublic.com/2025/12/16/heres-the-real-reason-bitcoin-price-collapsed-to-85000-support/
