Bitcoin’s ‘violent liquidation’. Why the digital darling has lost more than $1 trillion in value

Monday, 1 December 2025

If you had invested $10,000 in bitcoin in early October when the currency was riding at its high point for the year, you would have seen your money quickly decline in the weeks that followed.

Your investment would today be worth only $6,400 (at the time of writing).

The total dollar value wiped off the entire bitcoin market from its October 2025 peak until recently has been estimated at nearly US$800 billion ($1.4 trillion).

Even a weathered gambler would feel the niggling ache that comes with a big loss and wonder how much lower it could go.

Looking at the hype surrounding artificial intelligence, you’d expect this progeny of the digital era to be basking in the glow and continuing its upward trajectory.

Greg Boland, a market strategy consultant for sharetrading platform MooMoo New Zealand, borrows the words of the 1800s poet Charles Mackay to capture this moment in time:

“Men, it has been well said, think in herds. It will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

Boland describes Bitcoin’s 36% plunge from October’s high as a brutal reminder that what rockets up can crater just as fast.

“ETFs [exchange-traded funds] made crypto accessible to everyone, but accessibility isn't the same as understanding,” says Boland.

“As Peter Lynch wisely noted, never invest in anything you can't explain with a crayon. Right now, a lot of margin traders are learning that lesson the hard way.'

An ETF is akin to a diversified basket of investments (think stocks, bonds or cryptocurrencies) that you can buy and sell on the stock market like a single share.

ETFs for cryptocurrencies like bitcoin first became widely available in 2023, greatly increasing accessibility to cryptocurrencies among those who wouldn’t otherwise invest.

Essentially, it allowed anyone on a share trading platform to follow the ups and downs of the cryptocurrency market.

This accessibility played a significant role in bitcoin more than doubling from $40,000 at the start of 2024 to $94,000 by the end of the year, but the volatility of cryptocurrency should never be underestimated.

So what’s behind this drop?

Bitcoin isn’t alone among cryptocurrencies to go through a slump in recent months. Ethereum, the next most-traded coin, was down over 47% from all-time highs to recent lows.

“It sounds large, but this is crypto,” CMC Markets sales trader Eric Walkington tells me.

“This is normal, almost expected, especially by the veterans in the industry. A ‘meme coin’ that goes by the name of FartCoin was popular 12 months ago, but it has lost 94% of its value in the last 5 months from its highest price. Before that, it was up over 750% from March to July this year.”

Wild swings are part and parcel of the volatility that comes with investing in cryptocurrency, even as the sector goes more mainstream.

Another thing to note, says Walkington, is that Bitcoin has a habit of taking 20-40% drops after reaching all-time highs.

The concern now often comes down to the amount of money that moves when bitcoin rises or falls.

“A fall of 20% from 126k is a lot larger than 20% from 70k, numerically speaking,” he says.

Walkington says that cryptocurrencies tend to be more sensitive to market pullbacks, but also usually offer strong returns when the market recovers.

“Assets go through cycles and bitcoin is not immune to them, and the money flow was so large last year that a breather makes sense,” he says.

AI nerves

All eyes were on the Nvidia results announcement in November, viewing it as the litmus test for whether we are in an AI bubble.

Despite the result coming back ahead of expectations, the market remained jittery, and there’s still a sense of uncertainty about the amount of risk tied to AI investments right now.

“As investors have grown nervous about stretched AI and tech valuations and the path of US interest rates, they’ve been cutting exposure to the riskiest parts of the market, including crypto,” Jeremy Sullivan, an investment adviser at Hamilton Hindin Greene, tells me.

Bitcoin’s value is still heavily sentiment-driven, says Sullivan, explaining that bitcoin has not been able to live up to the idea of being a “digital gold” to invest in when markets get risky.

If anything, cryptocurrencies continue to be viewed as risky assets, which will dampen fresh demand after a recent sell-off in cryptocurrency assets.

Sullivan says a major contributing factor to the recent dip was “a violent liquidation of leveraged long positions in October”.

In simpler terms, many traders who bet on prices going up by using borrowed money (leveraged long positions) were forced to quickly sell their assets because the price started falling (violent liquidation).

When this happens, it can be difficult for fresh demand to pick up, particularly when everyone is becoming a little more risk-averse in the market.

So much of this speculative investing comes down to appetite for risk, and right now, investors just aren’t as eager as they were earlier this year to put their cash on the line when it comes to the riskiest part of the market.

What’s next for bitcoin?

Over the last five years, bitcoin has shown a proclivity to rise and fall dramatically. This hasn’t changed, and there’s every possibility that it could recover before the end of the year.

Despite this volatility, major institutional investors continue to back it.

According to Walkington, institutions like BlackRock, JPMorgan and others hold almost 25% of the total Bitcoin ETFs, which shows there is still strong long-term demand.

Janine Grainger, the founder of Easy Crypto, tells me that we are seeing a reduction in the volatility of bitcoin over time.

“We're seeing bitcoin mature as it grows and as different classes of investors enter the market, with the last few years being defined by an increasing inflow of institutional funds, including governments, corporates and ETFs,” she says.

However, there’s an important caveat in that all those investors still view bitcoin as a risky asset.

Grainger is a supporter of regulation, saying this will help to further stabilise the market and give investors the clarity and confidence they need to make decisions.

“We are still in the early stages, however, and delays in legislation or inconsistent and changing approaches from governments globally can drive uncertainty in the market,” she says.

Which is to say that bitcoin, ethereum or FartCoin are not for the fainthearted. These investments all still come with the important disclaimer that “violent liquidations” are to be expected.