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BTC, ETH, XRP, SOL Face Slow Bottoming Process After $16B Liquidation Shock

  • The crypto market experienced a significant crash, liquidating $16 billion in leveraged bullish bets across major cryptocurrencies.
  • These massive liquidations are likely to prolong the multi-step bottoming process, involving market makers arbing away price discrepancies.
  • All bets are off if the U.S.-China trade tensions continue to worsen.

The crypto market experienced its largest liquidation event ever on Friday night U.S. time, forcing out leveraged bullish bets worth $16 billion across bitcoin,  ether , solana , and the broader altcoin market. Several altcoins have crashed between 20% to 40% as the market recoiled.

Naturally, bulls may be wondering whether the recovery could be swift or take time. Understanding the process that follows a crash like this suggests the recovery is likely to be gradual, testing the patience of bullish investors.

"When the market turns like this, there’s usually a pretty straightforward playbook for the aftermath," Zaheer Ebtikar, chief investment officer and founder of Split Capital, said on X.

Here's what a typical sequence looks like:

Market bleeds and market makers pause

The initial phase involves the market "bleeding out" or tanking deeper as liquidation orders flood exchanges, pushing prices lower. We saw that happen overnight as several altcoins, including XRP, DOGE, and others, crashed to multi-month lows.

Amid this, market makers, the entities responsible for providing liquidity and ensuring orderly trading, usually step back temporarily to manage their risk and focus on "refilling by first taking out big spot and perp abrs on assets," as Ebtikar noted.

It means they address price mismatches between spot and futures markets with arbitrage plays involving opposing positions in the two markets. This process prevents an immediate rebound.

Data feeds stabilize

This phase refers to the period after a market crash, when information channels that traders and market makers rely on begin to work reliably again. During the crash, exchanges and the tech systems providing real-time updates, order book data, and order executions often see delays or outages due to high volatility.

Once the data feed stabilizes, market makers and large traders start absorbing major sell orders to restore market equilibrium. These participants capitalize on liquidation orders, which receive priority in order books and facilitate bargain hunting.

Given the sheer size of the forced liquidations observed overnight, this absorption phase can span several days.

Market stabilization

This stage involves dealers and market makers closing out their long positions, which they initially acquired at bargain prices while absorbing liquidation orders, to profit from a potential rebound.

"Once dealers fill long they will start unwinding spot and perp when the market is back to equilibrium. This is when the market hits a local maxima and the Dalai Lama chart starts hitting. Some assets that have tighter supply will look better than others," Ebtikar said.

This process is usually slow, especially over the weekend when the spot ETF's don't operate, reducing the overall market liquidity. This lower liquidity makes it harder and slower for dealers to unwind large positions without causing big price moves, so unwinding tends to slow down during these periods.

Market finds a floor

Eventually, the market finds a floor, settling into a more stable range, and investor confidence dented by the crash begins to rebuild.

To conclude, the large liquidations observed overnight will likely prolong the multi-step bottoming process, involving strategic buying of liquidation orders by market makers, liquidity challenges over the weekend, and new price anchoring.

All this being said, if the headline risk — continued U.S. - China trade tensions — doesn't subside, all bets are off as to when this will end.

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