The three layers of forces behind BTC's violent plunge from liquidity exhaustion

The surface phenomenon is a “deep pin” insertion, but its essence reflects a three-layer resonance in the spot and futures markets. Recently, BTC suddenly plunged from a high level and then quickly rebounded. Such violent fluctuations are not something retail investors can cause by smashing orders. Let’s analyze the market mechanism behind this.

Who is pushing down prices? The connection of three forces

① Liquidity squeeze by market makers

Market makers (Market Makers) are responsible for maintaining trading depth, but when panic occurs in the market, these institutions make rational choices—removing buy orders.

Once the order book below becomes sparse, a single moderate sell order can break through tens of dollars of price range. This is not manipulation but an inevitable result of liquidity exhaustion. When the trading depth indicator shows very low buy order density, any price decline will fall into a “vacuum zone.”

② Cascade liquidations of leveraged longs

Assets like SOL and BTC with high Beta are heavily affected in futures trading. When prices approach key support levels (such as BTC in a specific range):

• Large clusters of 10x, 20x, 50x leverage longs are concentrated in the same zone
• The liquidation system automatically triggers market sell orders
• Prices continue to fall → more longs are liquidated → forming a cascade liquidation effect

This chain reaction is fully automated, requiring no manual intervention. The mechanical selling by the liquidation engine is the true “trigger” of the pin.

③ High-frequency algorithm amplifies volatility

Once quant robots detect:

• Sudden surge in trading volume
• Rapid thinning of the order book
• Increase in liquidation events

They immediately adjust strategies: withdraw buy orders, increase sell pressure, accelerate decline, and harvest stop-losses. This deepens the pin by another 5-10 dollars.

Conclusion: The formation of a pin is a three-layer resonance of market maker liquidity contraction + automated leverage system liquidations + high-frequency algorithm acceleration.

Why does this happen now? Four triggering factors

1. Genuine lack of liquidity below

Technical indicators have long shown: the buy orders below the order book are below historical averages. When trading depth becomes weak to a certain extent, any moderate sell order can cause significant price fluctuations. This is not a conspiracy but a true reflection of market liquidity.

2. Excessive concentration of leverage positions

In recent weeks, bullish sentiment has been high, with many traders entering with high leverage. Once a liquidation is triggered, these longs generate massive market sell orders, pushing prices further down and causing more liquidations—creating a cascade effect.

3. Overall negative sentiment for BTC

Current technical signals for BTC show typical panic features:

• RSI in extremely oversold territory (values 4-7)
• OBV (On-Balance Volume) shows a cliff-like decline
• This indicates a major shift in sentiment

High Beta coins like SOL are even more affected, often falling 1.5-2 times more than BTC.

4. The pin signals a “bottom formation”

From a technical perspective, a sharp decline → failed rebound → new bottom test → violent pin is a classic bottom pattern. The appearance of a pin indicates that the selling pressure from the bears is being fully released.

Market implications of the pin: Short-term bottom signal

Violent pinning = Accelerated release of panic selling

When such extreme volatility occurs, it usually means:

• RSI reaches extreme lows (6-7), extremely oversold
• MACD begins to converge after divergence, bearish momentum wanes
• KDJ drops below -20 into an extreme zone
• Large volume at the bottom, with obvious increase in trading density

These features often signal the start of a short-term rebound. The pin is not a sign of continued decline but a top for panic. You can see SOL quickly rebound from lows to $127.34, and BTC also shows a +1.46% bounce, which is typical after a pin.

Practical insights: Three key points to understand

1. Liquidity exhaustion is the fundamental cause
Focus on order book depth, not news. The thinner the buy orders below, the more extreme the potential depth of the pin.

2. Liquidations are mechanical, not conspiratorial
Cascade liquidations are system-triggered processes, not involving any manipulation. Understanding this helps you avoid excessive panic.

3. Pins are often opportunities, not disasters
Technical oversold signals, volume accumulation, and divergence are all preconditions for a short-term rebound. The more extreme the pin depth, the stronger the subsequent rebound tends to be.

Simply put: Violent pin = Panic release completed → Short-term bottom appears → Rebound opportunity begins.