The China-US trade deadlock ignites an encryption "liquidation storm"! Behind the big dump of Bitcoin is it a cyclical turning point or a bull run interlude?

A $680 million long positions massacre swept through the crypto market within 24 hours, as the deadlock at the trade negotiation table transformed into a bloodbath on trading screens.

The moment U.S. Treasury Secretary Scott Basset finished speaking, the crypto market collapsed. "I want to say that they (the China-U.S. trade talks) have stalled a bit," Basset admitted during an interview with Fox News on May 29, emphasizing that direct dialogue between the two leaders is needed to break the deadlock.

The market's risk-averse mode has been activated instantly. Bitcoin has fallen below the key support level of $105,000, while Ethereum has dropped to a low of $2,557. The entire crypto market capitalization has evaporated by 2.6% within 24 hours, shrinking to $3.34 trillion.

24-hour performance of major cryptocurrencies

Crash Report: Trade Deadlock Triggers "Liquidation Domino"

When Bessant's "stagnation theory" spread through the media, the crypto market in the New York trading session immediately staged a tragedy. Bitcoin plunged to $104,600 on Bitstamp, down 2.1% in 24 hours, while Ethereum fell even harder, falling below the $2,600 mark, down 4.21%.

The altcoin market is bleeding: the Layer 2 sector bore the brunt, with the overall plunge of 8.7%, of which Arbitrum (ARB), Optimism (OP), and Starknet (STRK) fell by 11.31%, 11.43%, and 12.94%, respectively.

The death spiral of DeFi and Meme coins: The DeFi sector fell by 7.24%, Uniswap (UNI) plummeted by 10.78%; the Meme sector dropped by 8.21%, Pepe (PEPE) fell by 8.01%, Fartcoin (FARTCOIN) dropped by 9.4%.

The exchange liquidation data is shocking: in the past 24 hours, the entire network experienced liquidations of $683.4 million, with long positions accounting for over 90%. Specifically, Bitcoin alone contributed $211.21 million to the liquidation amount.

This liquidation storm shows obvious self-reinforcing characteristics—price declines trigger forced liquidations, and the selling pressure from forced liquidations further suppresses prices, creating a death spiral. As panic spreads, even the relatively resilient PayFi sector cannot escape a 4.34% drop, with only Safe (SAFE) rising against the trend by 22.09%, becoming a rare bright spot amidst the sea of green.

Cycle positioning: Normal pullback before the frenzy?

Despite the market's turbulence, on-chain data and institutional perspectives paint a different picture. Glassnode's on-chain indicators show that the STH SOPR (30-day moving average), which measures the profits and losses of short-term investors, has reached a local high but is far from the historical bull market peak level.

"Don't mistake small pullbacks for the end of the market; the overall risk/reward structure remains good." Placeholder partner Chris Burniske firmly stated on social media.

The core support of the market remains solid:

Institutional positions remain unchanged: Glassnode data shows that wallet addresses holding more than 1 BTC have increased by 15%, suggesting that large holders are quietly accumulating during the decline.

The derivatives market is showing signs of maturity: since the April low, open interest in BTC futures has increased from $36.8 billion to $55.6 billion, and options contracts have soared from $20.4 billion to an all-time high of $46.2 billion, indicating that professional investors are carefully managing risk through derivatives

Profit-taking has not yet spiraled out of control: The Bitfinex Alpha report points out that although short-term holders have realized $11.4 billion in profits over the past month, "structural demand remains intact," with ETF buying strength and spot premium signals indicating a healthy market.

Current pullbacks are generally seen by analysts as a "healthy correction in the price discovery process." Glassnode stated in its weekly report: "We have not yet reached the true 'euphoria' levels seen at previous major tops."

Trade Dark Line: The "China-US Game Dependency" in the crypto market

This plunge has profoundly revealed the deep binding of the cryptocurrency market to the relationship between China and the United States. Back in mid-May, when the two countries reached a "90-day buffer zone" agreement in Geneva, Bitcoin was soaring on the "tariff aversion" narrative.

Tariff policies and the mysterious resonance with Bitcoin:

On April 7, when the 24% tariff in the United States took effect, Bitcoin experienced a "Black Monday" plunge, but surprisingly rebounded 27% by the end of the month, creating a phenomenon that diverged from the S&P 500 index.

Blockchain data evidence: In April, the on-chain Bitcoin transfer volume between China and the US surged by 45%, with the median transaction amount jumping from $200,000 to $350,000, indicating the participation of institutional-level users.

On May 11, after the White House announced trade progress, the Bitcoin Fear and Greed Index plummeted from "Greed" (72 points) to "Neutral" (55 points), with the number of whale addresses decreasing by 12.

"Policy Roller Coaster" of Trump's Tariffs: This Wednesday, the U.S. Trade Court blocked Trump's tariff measures, and on Thursday, the appellate court overturned the decision, creating uncertainty that has left the crypto market and the Federal Reserve in a state of anxiety.

Federal Reserve officials expressed concerns in the May FOMC meeting minutes: "The tariff policies of the Trump administration could lead to rising risks of inflation and unemployment." With the correlation between the traditional financial system and the crypto market reaching 0.85 (CoinMetrics data), any fluctuations in trade policy are sure to cause waves in the crypto market.

Institutional Power: The "Invisible Support" of ETF Whales

Under the facade of retail panic selling, institutional funds are continuously flowing into the Bitcoin ecosystem through ETFs. On April 22, the single-day inflow of Bitcoin ETF funds reached $912 million, equivalent to more than 500 times the average daily level of 2025, which Glassnode referred to as a "significant anomaly."

ETFs rewrite the rules of the market game:

Marginal Buyer Effect: Bitwise research director Andre Dragosh pointed out: "Since January 2024, ETFs have become the 'marginal buyers' of Bitcoin, able to determine whether exchanges present a net buying or net selling state."

Liquidity Transformation: Bitcoin volatility has decreased from around 65% before the ETF launch to about 50%, as institutional long positions strategies and arbitrage mechanisms dampen volatility.

The siphon effect is evident: In May, BlackRock's iShares Bitcoin Trust saw inflows exceeding $6.2 billion, but as Derive founder Nick Forster observed, "the price did not show a corresponding increase," indicating that institutional funds are entering through over-the-counter channels to avoid impacting the spot market.

Net inflow of US current loan ETFs

Recently, Japan's Metaplanet company increased its holdings of Bitcoin by 104 million USD, and Michigan in the United States is promoting crypto-friendly legislation. These events confirm that the institutionalization process of Bitcoin is irreversible. As traditional financial giants like BlackRock and Fidelity layout crypto assets through ETFs, Bitcoin has transformed from a "speculative target" to a "strategic asset in global wealth redistribution."

Technological Crossroads: The $32.2 Trillion Lifeline

The total market capitalization chart of cryptocurrencies is sending out warning signals. After breaking below the support of 3.35 trillion USD, the market is retesting the key line at 3.22 trillion USD — this position triggered a 26% crash after it was lost on February 24.

Crypto market daily market capitalization chart

The long and short game of technical indicators:

Downtrend channel opened: If the total market capitalization falls below $3.22 trillion, it may quickly slide towards the $3.1 trillion mark which is where the 200-day moving average is.

Momentum indicator weakening: The Relative Strength Index (RSI) dropped from an overbought state of 79 on May 10 to 52, indicating accumulated downward pressure.

Bitcoin cost basis support: Bitfinex emphasizes that the short-term holder cost basis of $95,000 is the bull-bear dividing line, and the current price is still consolidating above it.

The derivatives market is sending mixed signals: although open interest in options has hit a record high, a Matrixport report indicates that "open interest currently seems to be stabilizing, suggesting that traders are taking profits and planning to re-enter at lower levels." If this high-level turnover is accompanied by sustained volume, it may instead solidify the foundation for further increases.

The next scene of the bull market script: consolidation or reversal?

At the crossroads of a pullback from a historical high, professional traders see not an ending but an opportunity. Nick Forster, founder of Derive, judges that the consolidation is a "healthy pause" before a new round of significant rises, allowing the market to digest the gains and build momentum for the next phase.

The core variable of the third quarter's changes:

Federal Reserve Policy Inflection Point: The June 18 FOMC meeting decision is crucial; if interest rate cut expectations heat up, it may ignite a new market trend.

Institutional allocation cycle: Historically, the average Bitcoin increase in the third quarter is only 6.03%, but Forster believes that "favorable regulatory developments and ongoing institutional interest may support an exceptionally strong performance this year."

Trade war risk transformation: If the US-China tariff war reignites after 90 days, Bitcoin may truly enter the mainstream sequence of "global trade hedging tools," forming a three-dimensional hedging system with gold and Swiss francs.

Bitcoin researcher Sminston With has proposed a more aggressive prediction: BTC may rise by 100%-200%, with cycle peaks reaching $220,000-$330,000. This expectation is based on Bitcoin increasingly becoming a "macro-sensitive, belief-driven asset"—its trading behavior is more anchored to global liquidity rather than retail sentiment.

The Federal Circuit Court overturned the tariff ruling, and the Federal Reserve's meeting minutes warned of inflation risks—these events hang over the market like the sword of Damocles. However, institutional investors continue to act amid this uncertainty: BlackRock's Bitcoin ETF saw a monthly inflow of $6.2 billion, which has not yet fully reflected in the price.

The crypto market is always like this, spiraling upwards in the cycle of fear and greed. Glassnode's on-chain data reveals the truth: despite the market experiencing a pullback, the relative unrealized profit metric has not yet reached a truly euphoric level, and the $11.4 billion profit realized by short-term holders over the past month has far from exhausted the market's structural demand.

When the smoke of the trade war clears, what remains may not be ruins, but the foundation of a new financial order.