The cryptocurrency market faced an unprecedented liquidation event on Friday night (U.S. time), triggering the forced unwinding of leveraged bullish positions valued at approximately $16 billion. This massive sell-off spanned major coins including Bitcoin (BTC), Ether (ETH), XRP, Solana (SOL), and other altcoins, many of which plunged between 20% to 40% as the market sharply declined.
Following such a significant downturn, traders and investors are keen to understand the likely recovery trajectory for digital assets. Industry experts suggest that, instead of a rapid rebound, the path to recovery may be gradual and involve several distinct phases.
Phase One: Market Bleed and Temporary Market Maker Withdrawal
The initial aftermath of a large liquidation event typically sees prices continuing to fall as liquidation orders flood exchanges. This dynamic was evident overnight with notable altcoins such as XRP and DOGE hitting multi-month low levels. During this period, market makers — the entities responsible for maintaining liquidity and orderly trading — tend to pull back temporarily. Their priority shifts towards rebalancing by exploiting arbitrage opportunities between spot and futures markets, a process which can delay any immediate price recovery.
Phase Two: Stabilization of Market Data Feeds
A market crash creates intense volatility that often disrupts data feeds and exchange functionalities, leading to delays or outages in real-time pricing and order executions. Once these technical systems normalize, large traders and market makers begin to absorb the flood of sell orders stemming from liquidations. This absorption helps restore market equilibrium. Given the scale of the recent liquidations, experts anticipate this phase could last several days.
Phase Three: Market Stabilization Through Dealer Activity
After absorbing liquidation volumes, market makers typically start closing out the long positions they acquired at depressed prices, aiming to capitalize on a potential price rebound. This unwinding of positions usually happens cautiously, especially over weekends when spot exchange-traded funds (ETFs) are inactive, reducing liquidity. Limited liquidity makes it difficult to offload large positions without causing further price fluctuations, prolonging this stabilization process.
Phase Four: Establishing a Market Floor
Eventually, with dealers having balanced their books and major sell pressures absorbed, the market tends to settle into a more stable trading range. At this point, investor confidence can begin to recover gradually, though sentiment may remain cautious depending on broader economic or geopolitical factors.
It is important to note that external risks, such as ongoing U.S.-China trade tensions, have the potential to influence this recovery timeline significantly. Until such headline risks ease, pinpointing the exact duration of the bottoming process remains challenging.
In summary, the recent historic liquidation event is expected to extend the bottoming phase for Bitcoin, Ether, XRP, Solana, and the wider crypto market. This multi-step process involves strategic buying by market makers of liquidation orders, temporary liquidity constraints, and a measured price reanchoring. Investors should thus prepare for a slow and steady market reset rather than an immediate V-shaped recovery.
