2026-01-07 14:23:06

Market volatility is often not a conspiracy but the most direct reflection of liquidity mechanisms.

The recent sharp decline in the early morning is a typical example. Bitcoin suddenly plunged to around $99,800 in a short period, then rebounded. Such extreme fluctuations make many exclaim "black swan event." But if you look at on-chain data, you'll find the truth is much simpler—it's nothing more than two capital outflows happening simultaneously, draining market liquidity instantly.

First, the U.S. Treasury General Account (TGA) began to absorb large amounts of market funds under government shutdown pressures. Soon after, hawkish remarks from Federal Reserve officials shattered market expectations of rate cuts, causing leveraged long positions to be liquidated en masse. The combination of these two factors caused liquidity to dry up much faster than expected.

Imagine the market as a large water tank, with the US dollar as the water inside. When two giant pumps operate simultaneously, how fast can the water level drop? The assets most dependent on liquidity to maintain their prices are the first to feel the pressure.

The even more extreme flash crash at the end of December illustrates this point—Bitcoin on a certain trading pair once dropped to $24,000, a 70% decline. But this was not a problem with Bitcoin's intrinsic value; it was a pricing failure caused by the complete exhaustion of liquidity on that specific trading pair. That trading pair already had low trading volume, a severely shallow order book, and with market makers leaving en masse during the Christmas holiday, buy-side support was virtually nonexistent. A sufficiently large market sell order directly broke through all buy orders, causing the price to spiral out of control.

The scope of such flash crashes is actually quite limited, confined to specific trading pairs with fragile liquidity. Bitcoin price fluctuations on mainstream trading pairs are far less intense, indicating that the overall market still has enough resilience. Understanding this is crucial for assessing true risks—not all volatility signifies a systemic crisis; sometimes, it's just a hole punched through the liquidity landscape.

BTC-0,35%

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BlockchainFries

· 01-07 14:52

Ah, finally someone has explained this thoroughly. I was really scared during the 99,800 wave. Once liquidity dries up, it’s a completely different story. Many people are still shouting about black swans, but it’s actually just fragile trading pairs being exposed. The 70% drop was even more intense. The order book was empty and couldn’t hold, and even market makers left during the holiday. Who’s to blame? The key is to distinguish which issues are real problems and which are just partial flash crashes of certain trading pairs. Only then can you assess the risk, otherwise you’re just a scared bird every day.

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FlashLoanLarry

· 01-07 14:47

liquidity depth charts don't lie, but orderbook deserts sure can fake you out... told y'all the real risk isn't the volatility, it's the *basis points* separating solvency from liquidation cascade. that 2.4k flash on low-volume pairs? textbook capital utilization failure. most won't see it coming til the market maker exits during holidays lmao

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ForkThisDAO

· 01-07 14:42

Alright, this is what I was talking about. Ordinary people see 99800 and shout "black swan," but actually it's just the liquidity gap being pierced. That move to 24,000 scared me to death at the time, but later I realized it was specific to certain trading pairs. Major exchanges aren't that exaggerated. When market makers pull out during the Christmas holiday, there's no buying support at all—that's the real killer. People who don't understand liquidity are always scared; those who do just watch the show.

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GasFeeAssassin

· 01-07 14:41

It's the liquidity problem again, honestly, nobody wants to take the risk. --- A 70% drop would scare anyone, but after checking on-chain data, I feel a bit relieved. --- Two pumps happening at the same time, no wonder the price is plunging straight down. That analogy is perfect. --- Wait, are you saying that the trading pairs you mentioned are so fragile? Do some small exchanges often play like this? --- Got it, the overall market is fine, it's just some ships capsizing in the gutter. No need to worry too much. --- I think these flash crashes are actually good opportunities for shorting. Isn't the plunging trading pair an opportunity? --- So it's not Bitcoin's problem at all, it's just that liquidity is too unstable. --- Here's a question: if mainstream trading pairs are so stable, what about small coins? Do they just die instantly?

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BlockchainFoodie

· 01-07 14:39

honestly this is just liquidity pools running dry like a badly managed michelin kitchen during service - when your order book depth is thinner than a paper-thin mille-feuille, one fat market sell order basically nukes everything lol the water pool analogy hits different tho ngl, it's literally what happens when you remove all the stock from a sous-vide machine mid-cook... total collapse

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NotSatoshi

· 01-07 14:29

Emma, it's the liquidity issue again. Is it really, or are they just going to cut us retail investors again?

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BearMarketSurvivor

· 01-07 14:28

To be honest, I only understood the wave at 99,800 after looking at on-chain data. It was indeed just liquidity being drained, nothing too mysterious. A 70% flash crash sounds terrifying, but upon closer thought, it's just small trading pairs with low volume playing around, which doesn't affect the mainstream market at all. The analogy of two pumps working simultaneously is brilliant. That's why I never trade in pairs with poor liquidity; the risk is too high. Market makers leaving during holidays causing the order book to break below the buy side—I'm used to this operation; Christmas market conditions are always like this. Not every drop is a crisis. Distinguishing between them is key to surviving longer. I have deep experience in this.

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