Crypto Market Faces Major Selloff and Liquidity Crisis in Late 2025
October 2025 witnessed a severe $19 billion liquidation cascade, triggering a sharp drop in Bitcoin's price from about $122,500 to $107,000 within hours. This selloff led to a depletion of liquidity and a reduction in market depth, as open interest fell from approximately $30 billion to $28 billion by November 21, highlighting a fragile trading environment.
Digital asset treasuries (DATs) traded below their net asset value (mNAV), with many funds recording mNAVs below 1.0. Several DATs shifted focus away from asset accumulation toward share repurchases, as exemplified by KindlyMD. Meanwhile, altcoin spot ETFs continued to attract inflows—Solana ETFs garnered around $900 million and XRP-related products saw over $1 billion of inflows—despite declines in the underlying tokens, with SOL falling roughly 35% and XRP around 20%.
Market psychology transitioned from ETF-driven buying to mounting selling pressure as DATs faltered. Price rebounds since then have been driven largely by short covering rather than fresh demand. Notably, Bitcoin's historically strong fourth quarter did not materialize this year; BTC has dropped about 23% since October 1 and risks its worst Q4 performance in seven years if these levels persist.
Looking ahead to 2026, catalysts remain unclear. Previous drivers from 2025 failed to sustain momentum, leaving rate-cut expectations as the primary potential upside. However, there is significant downside risk if DATs continue winding down and forced liquidations spike. Even prominent market participants like MicroStrategy's Phong Le have suggested selling BTC if mNAVs fall below 1.0, underscoring systemic liquidity threats.
Despite the overall grim outlook, some market watchers see the capitulation as a potential buying opportunity once market stress eases and conditions stabilize.
